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Sell Whole Foods, Hold Starbucks, Buy Coke and Pepsi

The company remains an excellent growth story and certainly should be a part of a long-term portfolio. However, on the heels of Chipotle's poor performance logic says caution should be the best approach here with Starbucks. Though I would not recommend selling the stock, neither would it be prudent to add ahead of its report.

Buy Coke and Pepsi

While these two titans have battled it out in the market for years with their legendary "taste test," they both have been safe stocks by virtue of their stability, market-beating performance as well as continuing to offer one of the best dividend yields on the market.

Last week, upon the release of Coca-Cola's earnings report, investors were once again reminded not only why the company continues to be one of the best brands in the world, but also a standout in terms of execution.

For the second quarter, Coca-Cola reported net income of $2.8 billion on revenue of $13.1 billion, topping analyst expectations both on the top and bottom lines. The company attributed the solid performance on overseas growth in areas such as China, Russia and India. On the year the stock is up over 11%, with no noticeable signs of slowing down.

As for PepsiCo, the company will report earnings on Wednesday and investors should expect similar to or slightly better results than Coke.

Analysts expect the balance of 2012 to generate total sales of $67.5 billion and earnings of $4.11 per share, or 2.4% growth. It gets even more interesting for 2013, where that number is projected to top $70 billion with sales growth of 4.5% on earnings of $4.44 per share.

As both companies demonstrate similar strengths and challenges, the difference comes from their respective growth prospects or, more appropriately, which one is better positioned to capture and maintain what is left of the market.

From the standpoint of valuation that places PepsiCo at forward trading multiples of 16 for this year and just under 15 for 2013 based upon its current valuation.

Coca-Cola currently trades at a price-to-earnings ratio of 20 and its growth projections places its forward P/E at just under 18.

The numbers clearly demonstrate how tight the race is between these two rivals as they are both heading in the same direction -- upward, which makes them both excellent long-term buys.

Bottom Line

Earnings season can be both an exciting time as well as one that brings a lot of anxiety for companies as well as investors. It's called the reporting period for more than one reason: Companies are essentially sharing their quarterly report cards, where getting a passing or failing grade often depends on the expectations that were set.

In a separate article, we'll look at possible earnings plays in Facebook (FB), Amazon (AMZN) and Exxon Mobil (XOM).



At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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