The Coca-Cola Company (KO) or PepsiCo, Inc. (PEP) in 2013?

Everyone loves a good rivalry. Especially when the companies in question are two of the world’s largest soda makers. The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) both reported earnings this week, with some surprising results. Let’s dig deeper to find out which stock is a better buy now, and what the rest of 2013 holds for these pop rivals.

Pepsi peps up
Investors sent shares of Pepsi higher this week, after the company delivered fourth-quarter revenue and earnings that topped analysts’ expectations. The soda giant’s net revenue spiked 17% in the period, helped by strong sales in both its snacks and beverage businesses. Pepsi pulled in earnings of $1.09 a share, on revenue of $19.95 billion for the quarter.

The good news continued with Pepsi announcing a 5.6% dividend hike, set to begin in June of this year. This should be welcome news to income investors, as it boosts the annual dividend payout to $2.27 a share. Besides, in 2013 the company plans to return $6.4 billion to shareholders through dividends and share repurchases. Clearly, it’s a good time to be a PepsiCo stockholder.

But with shares of Pepsi up more than 17% in the past year, can the stock continue to climb higher from here? I think so, and here’s why…

The company’s recent earnings release proves that Pepsi is on track with its turnaround strategy. Pepsi has successfully raised prices, added new products, and significantly increased its marketing budget, all since its fall from grace nearly a year ago. In fact, even Pepsi’s embattled North American beverage business is making progress — growing 2.5% in the fourth quarter.

Now for comparison, let’s check out how Coca-Cola is doing so far this year.

Coca-Cola’s classic
It seems the cola king can’t catch a break these days. Coke reported earnings on Tuesday that were largely in line with analyst estimates. However, it wasn’t enough to keep investors from pushing shares lower. The stock closed the day down more than 2%, as worries over the company’s gross margins put a damper on the quarterly results.

For its fourth quarter, Coke’s net revenue grew 4%, coming in at $11.5 billion. The company earned $0.45 per share in the period, whereas analysts were looking for $0.44 a share. Despite weakness in the quarter, I’m optimistic about Coke’s longer-term prospects. Going forward, Coke should be able to boost growth in emerging markets such as India. In fact, the company plans to invest $5 billion in the region by 2020. Between its international growth opportunities and massive distribution network, I suspect the company’s margins will improve in the coming quarters.