Despite Strong Earnings, Pepsi Isn't the Soda Stock You Should Own. This One Is

Pepsi shares are rising on positive earnings for the second quarter. However, bigger profits from bubbly beverages lie elsewhere...
By Kat McKerrow ,

Shares of PepsiCo (PEP) - Get Report are up today following a more positive earnings announcement than expected. Although the demand for high fructose corn syrup-laden sodas is definitely slowing, Pepsi has proven that it has the business savvy to stay on trend. This will continue to make Pepsi a good investment choice...but don't forget about another stock set to rise as soda companies re-invent themselves.

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Analysts have been calling the "end of soda" for years now. Undoubtedly, Americans are becoming more health conscious, caring more about what they put into their bodies. However, the idea of what's healthier tends to change with the passing years -- diet sodas, which use alternative sweeteners such as aspartame to cut calories, were once considered healthy. But then Americans began favoring full-calorie sodas sweetened with actual cane sugar. The soda companies have to stay sharp to address these changes.

However, soda sales as a whole are still decreasing -- now matter how the pop is sweetened. Even Coca-Cola (KO) - Get Report  has not been immune to falling sales -- last year, Diet Coke dropped by nearly 5.6%.

Pepsi has made the smart choice in diversifying its portfolio, adding focus on other consumables such as snack foods. And it's paying off. In the most recent quarter, the company's Frito-Lay North America segment, which manufacturers the ever-popular Doritos nacho chips, rose on strong sales volume and pricing. Profits for the segment rose by 8%. And Quaker Foods, Pepsi's oatmeal-based segment, also grew its profits by 11%.

Overall earnings for the second quarter of 2016 beat Wall Street expectations. The company earned $2.01 billion for quarter, or $1.38 per share. That's an increase over the same quarter last year, when Pepsi earned $1.98 billion, or $1.33 per share.

Investors certainly found enough to celebrate in the second-quarter results. Pepsi stock jumped today by more than 2%, hitting a new 52-week high of $109 per share.

However, Pepsi isn't the only stock on the rise today. And that presents us with an intriguing opportunity.

Shares of SodaStream (SODA) - Get Report are riding high today, piggybacking Pepsi's gains. In fact, the stock is currently up nearly 3% from its opening price of $21.21 per share.

SodaStream manufactures machines and flavor syrups for consumers to make their own soft drinks at home. However, as soda sales stagnated, so did the company's stock. In fact, SodaStream lost three-quarters of its market value during the last few years.

Now the company is back, taking a different tack. Instead of marketing its products as soda makers, SodaStream has put an emphasis on DIY water. Instead of making your own colas with its products, you can now make your own natural flavor-enhanced sparkling water drinks. The company's products are even sold at Whole Foods Market, considered by many Americans the bastion of health food.

This approach has definitely worked in SodaStream's favor. For the first quarter of 2016, the company announced revenue of $100.9 million, a 10.4% year-over-year increase.

Pepsi is a great stock for investors who favor big profit-churning blue chips. But SodaStream is a plucky little company that has the potential for some quick and explosive growth.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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