2 Stocks You Must Buy Despite A Gloomy Industry Outlook: Energen Corporation (EGN), PepsiCo, Inc. (PEP)

Moving on to 2013, the company is looking to add new locations in the Delaware Basin that is famous for holding large oil fields. Towards the end of 2012, Energen drilled four Wolfcamp wells in this basin that are still under completion. In 2013 the company plans to drill 12 more test wells in Delaware Wolfcamp and 6 wells in Wolfcamp/Cline in Midland Basin. The development program in the latter case will only begin in late 2013. Therefore, I feel the potential benefits will start flowing in 2014 and beyond. I would recommend a hold rating for the stock for the short-term. But if you are targeting a stock on the long term horizon, this surely is a good bet.

PepsiCo, Inc. (NYSE:PEP)

Pepsi is also among those beverage companies in the US which are struggling against the mounting pressures of health related issues of the carbonated drinks. The company generates ~14% of its CSD (carbonated soft drinks) sales from North America, which is likely to get affected by the troublesome trends in the market. Despite this, the company has maintained a decent average dividend yield of ~2.8% in the last five years and the forward yield is ~3.0%. This is the reason why investors still have not lost their confidence in the company. Under this tremendous pressure, the company has resorted to various promotional campaigns to enhance its market share. In the future, the company plans to spend ~$500 million in 2013 on promotions of Gatorade, Mountain Dew, Pepsi, and Tropicana. The promotions would mainly focus on North America where the company is facing a tough fight from Coca-Cola. I see this move as an important one to improve the company’s sales in this region.

Another positive aspect for the company is its snacks division. Pepsi’s snacks division has been operating well in the last few years as is currently the most profitable segment. It is consistently maintaining a good operating margin of ~20% for the last five years. This provides a huge opportunity in front of the company to enhance its overall profitability. I see Pepsi as a company with a favorable product mix, right international exposure, and high cash flow for supporting its promotional activities. And, I expect the company’s revenue growth to be in the middle single digits in 2013.

Conclusion

To end, I feel both Philip Morris and PepsiCo are placed in tough macro conditions in their respective industries. However, the strong international focus and a healthy portfolio have always helped these companies offer attractive returns to shareholders. I recommend a buy rating for these two stocks. On the other hand, Energen’s short term prospects remain uncertain over its long development programs. Therefore, I will stick to my hold rating for this stock.

The article 2 Stocks You Must Buy Despite A Gloomy Industry Outlook originally appeared on Fool.com and is written by Madhu Dube.

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