Best Stock to Buy Right Now: Coca-Cola vs. PepsiCo

Coca-Cola (NYSE: KO) and PepsiCo (NASDAQ: PEP) have a long-standing rivalry as each has battled for the hearts, minds, and wallets of consumers. The heated competition has been intense over the last few decades as they engaged in the cola wars.

These venerable companies have become well-known household names, and they're giants in the consumer packaged goods industry. However, it's important to look beyond past achievements and growth to see which company offers better investment potential.

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Stock analysis may not have the entertainment value of the companies' commercials, but which one, Coca-Cola or PepsiCo, deserves your investment dollars?

Image source: Getty Images.

Coca-Cola

Coca-Cola started selling its namesake brand in 1886, and it remains a pure beverage company. It has expanded beyond soda, however, and also sells items like water, coffee, tea, juice, and plant-based beverages.

It's tough for companies to remain relevant and stay in business for well over a century. Fortunately, Coca-Cola has been able to continue growing revenue. Fourth-quarter revenue, adjusted to exclude the effects of acquisitions/divestitures and foreign currency translations, grew 14%.

Price/mix accounted for the majority of the increase, 9 percentage points. Importantly, though, the balance came from increased volume. Coca-Cola's Q4 operating income grew an impressive 22%. That strong increase is noteworthy since it came as consumers have been weary after high inflation and they've become reluctant to purchase nonessentials.

Coca-Cola's shares have rewarded investors, with the price gaining about 18% over the last year through April 4. The S&P 500 index lost 1.4% during this period.

Coca-Cola's stock does trade at a slightly higher valuation than the S&P 500 average. The former has a trailing price-to-earnings (P/E) ratio of 28 compared to the latter's 27.

PepsiCo

PepsiCo, meanwhile, has expanded beyond soda. It also offers food items like tortilla chips, potato chips, cereal, and granola bars under brands like Cheetos, Doritos, Life, and Quaker.

While the company has been successful for a long time, revenue has been sluggish lately. Adjusted fourth-quarter revenue increased 2.1%, split between volume and price increases. Management was able to control expenses, and adjusted earnings per share increased 14%.

PepsiCo's 2024 revenue also was up 2% for the year. However, this was solely due to price increases, which added 4 percentage points while volume subtracted 2 percentage points. Management doesn't expect much acceleration this year, forecasting a low-single-digit percentage increase in revenue.

Reflecting the sluggish top-line growth, the shares slumped over the last year. PepsiCo's stock price fell about 14% during this time. The valuation also became less expensive with the P/E ratio contracting from 26 to 21.

The winner

Both companies, with global presences, will undoubtedly feel the effects of tariff implementations by the Trump administration. No one knows the complete ramifications, and investors should brace for near-term impacts.

However, it's important for investors to maintain a long-term perspective and focus on the underlying businesses. Dividends remain an important part of Coca-Cola's and PepsiCo's total returns, and that could become increasingly important given the uncertain short-term global economic outlook.

They have each raised dividends for more than 50 years and earned a place among the Dividend Kings. Coca-Cola and PepsiCo have dividend yields of 2.9% and 3.7%, respectively.

With both reliable dividend payers, it comes down to which offers the better outlook. Given Coca-Cola's current momentum and ability to navigate the squeezed consumer, I'd choose that stock over PepsiCo despite the more expensive valuation.

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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.