Invest In PepsiCo, Inc. (PEP) and The Coca-Cola Company (KO)?

PepsiCo, Inc. (NYSE:PEP)Medscape is reporting the results of studies showing how just one soda each day can increase a person’s chance of developing type 2 diabetes by as much as 25%. While this isn’t necessarily surprising, the American Heart Association recommends not drinking more than 450 calories a week of sugar-sweetened beverages.

That’s three 12-ounce cans of PepsiCo, Inc. (NYSE:PEP . Let’s look at these soda companies and maybe it will help us understand why America is struggling with obesity-related diseases such as diabetes.

A 12-ounce can of The Coca-Cola Company (NYSE:KO) has 10 fewer calories than the same- sized can filled with Pepsi. In the area where I’m from, a 12-ounce can of Coke costs about $0.75. Coke generated enough revenue last year to account for more than 64 billion cans of coke. That’s a lot of cans, and it’s even more calories.

In fact, that would equate to approximately 8.9 trillion calories. There are about 7.1 billion people in the world, so if every person in the world consumed the same amount of Coke there would be approximately 1,262 calories of Coke consumed by every person. That is slightly more than nine cans of Coke for every person each year. Keep in mind, this is just Coke.

Okay, so we will get on to more relevant things now, but hopefully that helped put the soft-drink industry into perspective.

Show down

The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) have been lifetime (at least for me) competitors. Coca-Cola’s market cap is nearly 48% larger than PepsiCo’s, despite PepsiCo selling many food products, as well.

Coca-Cola’s profit margin is 60.3%, while PepsiCo, Inc. (NYSE:PEP)’s is 52.2%. Both companies have experienced nine revenue increases in the past 10 years, along with PepsiCo’s seven years of increased earnings per share (eight from Coca-Cola). It becomes obvious just how well these companies are doing.

Although dividend yields are virtually identical, PepsiCo, Inc. (NYSE:PEP) does edge out its competitor by 0.1% posting a 2.6% dividend yield. PepsiCo seemingly has the upper hand when it comes to comparing metrics in several different areas.

In fact, PepsiCo, Inc. (NYSE:PEP)’s inventory turnover is about 8.5 compared to The Coca-Cola Company (NYSE:KO)’s 6. Coca-Cola’s FCF yield is 4.2%, while PepsiCo’s is 5.6%. Pepsi seems to provide slightly better value for investors, but both companies are selling products in more than 200 countries.

Earnings yield present a show down, as both companies show an earnings yield of approximately 4.7%. Maybe the best opportunity for investors lies in a company that receives its profits from the potential side effects of too much soda.

The result

Novo Nordisk A/S (NYSE:NVO) is a company that strives to “defeat diabetes by finding better methods of diabetes prevention, detection, and treatment.” It’s a company with a market cap of $95.1 billion. What does this have to do with drinking soda?

Well, we all read how many calories are in soda and we all know people that drink more soda than water. While some people would argue that this is due to eating habits, I certainly don’t believe that sugar-sweetened beverages decrease the rates of obesity. The charts below show the correlation of obesity and diabetes.

PepsiCo, Inc. (PEP), The Coca-Cola Company (KO): One Soda a Day Keeps Your Health Away
PepsiCo, Inc. (PEP), The Coca-Cola Company (KO): One Soda a Day Keeps Your Health Away