Key Highlights
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An activist investor has acquired $4 billion in PepsiCo shares.
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ConocoPhillips shares have dropped due to declining energy prices.
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Industry leader Watsco is expected to overcome its short-term challenges.
- Discover 10 stocks we prefer over PepsiCo ›
As the overall stock market rises quicker than companies’ payouts, the dividend yield of major indexes decreases, as observed with the S&P 500, which currently yields only 1.2%. However, there are numerous dividend stocks offering greater passive income than the S&P 500. Here’s why contributors from Fool.com believe that PepsiCo (NASDAQ: PEP), ConocoPhillips (NYSE: COP), and Watsco (NYSE: WSO) are attractive investment options now.
Pepsi: A Bargain with Potential
Daniel Foelber (PepsiCo): On September 2, activist investor Elliott Investment Management revealed a $4 billion stake in PepsiCo, representing about 2% ownership. Elliott’s 75-page report emphasized that Pepsi is undervalued compared to its strong brand portfolio and global reach, showcasing a low forward P/E ratio of 18.5 against its historical median of 26.2.
Elliott views Pepsi as having potential but not fully capitalizing on it, which has resulted in sluggish stock performance. In contrast, the consumer staples sector has seen over a 20% increase in five years, with Coca-Cola outperforming Pepsi further.
Although Elliott’s stake signals confidence in Pepsi, potential investors should avoid expecting a swift turnaround. The stock’s sluggish growth is due to stagnant earnings. The investment perspective focuses on future potential rather than current performance, prompting some investors to adopt a cautious stance.
ConocoPhillips: A Smart Move for Passive Income
Scott Levine (ConocoPhillips): While the S&P 500 has experienced a 15% rise, ConocoPhillips has faced a 13% decline over the past year. This current dip presents an opportunity for income-seeking investors, especially with its 3.2% dividend yield.
The stock’s downturn is largely attributed to the 10.7% drop in oil prices over the past year, influencing energy stock performance. Nonetheless, management is optimistic about 2025, predicting robust cash flow driven by tax benefits and reduced capital needs, estimating $8 billion in free cash flow.
Watsco: Seize the Buying Opportunity
Lee Samaha (Watsco): Watsco’s shares have declined by 16.6% this year, mainly due to weaker conditions in the HVACR markets. This dip makes it a notable buying opportunity, especially given its 3% dividend yield.
The company’s established model focuses on acquiring smaller distributors to broaden its reach, which typically benefits from economies of scale. Current challenges stem from sluggish revenue in residential construction and issues with new refrigerant transitions. However, these are expected to be temporary, and Watsco may emerge stronger once the market stabilizes.
Should You Invest in PepsiCo Now?
Before purchasing PepsiCo stock, consider the following: the Motley Fool Stock Advisor analysts have identified 10 top stocks that are currently recommended, and PepsiCo did not make the list. If you invested $1,000 in some of past recommendations like Netflix or Nvidia, you could have seen impressive returns, exemplifying the potential of the advice from Stock Advisor.
