Jim Cramer recently discussed finding defensive opportunities in large-cap stocks offering high dividend yields and relief from cheaper oil prices. During the August 26 episode of Mad Money, pointing to PepsiCo, Inc. (NASDAQ:PEP), he noted that management highlighted convenience store headwinds tied to high gasoline prices during recent earnings discussions. He commented:
Maybe it’s worth seeing which stocks just hit a 4% dividend yield. Nice protection. Also benefit from cheaper oil. Who does that? Aha, I recall that PepsiCo said its sales have been held back by high gasoline prices. I think they said it four or five times in the call. Oh, and look at this. It now has that… high 4% yield. Eureka! It fits. I look at the stock, I say to myself, boy, is that low. See, unlike Salesforce, which is high, unlike NVIDIA, which is high, I like them low. Some people like them hot; I like them cool, low versus the historic valuation, too.
I know that CEO Ramon Laguarta needs to get that stock higher. I know they have a good balance sheet. Maybe he’s motivated to do something extreme. Most important, he emphasized four times that, you know what, in this environment, well, there’s too much inflation, again, because of gasoline. Don’t forget, they have a lot of convenience store sales. Now, that’s the genesis of an idea, not a position, just an idea. I’ve walked you through the starting point of the process of trying to buy a stock that hasn’t moved with a good yield. After you come up with the idea, you have to do the homework: study the company over many years, check ingredients, how it’s done over many years… see what management has to do and figure out if they’ll do it.
Q2 Financial Strength Meets Consumer Headwinds and Dividend Appeal
PepsiCo, Inc. (NASDAQ:PEP) is dealing with cautious shoppers as expensive fuel weigs on impulse spending and extra spending at convenience locations. Despite these near-term pressures, the company offers defensive stability, which is supported by a 4% dividend yield and a valuation trading at a discount relative to historical multiples. Currently, the stock trades at a forward earnings multiple of 16.64.
In its second-quarter earnings report, PepsiCo, Inc. (NASDAQ:PEP) posted net revenue of $24.18 billion, beating Wall Street consensus estimates by around $230 million, while non-GAAP earnings per share reached $2.20. Global volume recovery, led by international markets and select food divisions, along with affirmed full-year guidance targeting 2% to 4% organic revenue growth, highlights steady operational strength.
Risks and Margin Pressures Facing PepsiCo
Despite its defensive appeal and attractive dividend yield, PepsiCo, Inc. (NASDAQ:PEP) faces headwinds that concern some investors. Margin compression remains a primary worry, especially within the PepsiCo Beverages North America segment. During the earnings call, Executive Vice President and CFO Stephen Schmitt revealed that operating margins experienced a 90-basis-point pullback due to higher commercial spending and softer traffic in convenience and gas channels. Furthermore, high gasoline prices and consumer fatigue have restricted impulse buying, posing a persistent obstacle for snack and beverage volumes. Rising input costs, ongoing competitive pressures from alternative brands, and execution risks tied to portfolio reshaping could also become factors that could limit near-term profitability. We also recently discussed how PepsiCo (PEP)’s dividend is strong but the stock needs a turnaround.
Institutional Footprint and Market Sentiment
According to Insider Monkey’s database tracking over 1,000 elite hedge funds, institutional participation shifted slightly during the second quarter. The number of hedge fund holders in PepsiCo, Inc. (NASDAQ:PEP) stood at 68 in Q2, down from 72 in the previous quarter. Fisher Asset Management was the company’s most prominent hedge fund shareholder with nearly 8.7 million shares, as per Insider Monkey. Meanwhile, short interest stands at 1.92% of the public float, reflecting relatively low bearish sentiment as long-term investors weigh the company’s defensive attributes against near-term headwinds.
PepsiCo, Inc. (NASDAQ:PEP) remains a classic defensive income play balancing near-term convenience store headwinds with a solid balance sheet and an attractive dividend yield. As Cramer’s breakdown suggests, looking past current consumer spending pressures reveals a durable, cash-generative business for investors hunting for cool, low-valuation opportunities.
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