Chipotle Mexican Grill, Inc. (CMG), PepsiCo, Inc. (PEP): Three Don’ts When Researching Publicly Traded Businesses

Don’t forget that you’re studying businesses
When staring at Internet headlines — especially the stock quote screen — you forget that a dynamic business lies behind those numbers and graphs. You must look for catalysts that will propel your business forward, such as a product immune to obsolescence, high barriers to entry keeping would-be competitors at bay, and a forward-looking perspective.

For example, beverage and snack conglomerate PepsiCo, Inc. (NYSE:PEP) sells products such as orange juice, bottled water, snacks, and healthful food. Unlike computers, these products will never go out of style. PepsiCo, Inc. (NYSE:PEP)’s bottling and distribution infrastructure keeps new competitors from moving into its territory. Its Lay’s snack foods and Quaker segments set themselves apart from rival Coca-Cola, which mostly sells beverages. When factoring out acquisitions and divestitures, PepsiCo, Inc. (NYSE:PEP)’s snacks segment grew volume 3% in its most recent quarter, while its beverage segment only increased volume 1.5%. Companies focused on soda face an increasingly dismal future as increased health awareness stigmatizes its consumption. PepsiCo, Inc. (NYSE:PEP)’s future is in innovating nutritious snacks and selling healthier non-sparkling beverages such as juice and bottled water.

On the whole, when researching a company for investment, it pays to keep your nose glued to the investor relations website of your target company, where you can find information in their SEC filings about financials and competitive positions. Watching the daily movements of your companies’ stocks and news headlines in general invokes a panicked, short-term mentality that will result in knee-jerk transactions, costing you in terms of commission, taxes, and opportunity. Instead, focus on businesses that generate cash flow that will translate into dividends and capital gains for the long term.

The article 3 Don’ts When Researching Publicly Traded Businesses originally appeared on Fool.com and is written by William Bias.

William Bias owns shares of Coca-Cola. The Motley Fool recommends Chipotle Mexican Grill and PepsiCo. The Motley Fool owns shares of Chipotle Mexican Grill and PepsiCo.

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