As 2025 gets underway, investors looking to refresh their portfolios with some attractively valued companies may be looking at stocks that underperformed the market in 2024. Coca-cola (NYSE: KO) And PepsiCo (NASDAQ: PEP) have been under pressure over the past year and both are down about 14% from their 52-week highs.
Given the overlapping activities, it probably doesn’t make sense for most investors to have both stocks in their portfolios. So which one is the better buy now?
PepsiCo’s 2024 was slightly worse than Coca-Cola’s. Not only was the dip from the peak a bit steeper, it’s actually down more than 10% year to date, while Coca-Cola is up about 5%.
However, if you look the lens further back, PepsiCo’s decline from a three-year high is about 22%, while Coca-Cola’s is about 14%. But Coke had a rally from late 2023 that lasted until 2024, while PepsiCo did not. Overall, investors appear to have been slightly more negative about PepsiCo.
That negativity gap extends to their relative valuations. PepsiCo’s price-to-sales ratio is almost 18% below the five-year average. Coca-Cola’s price-to-earnings ratio is only about 7% lower than the five-year average. Similarly, PepsiCo’s price-to-earnings ratio is about 14% below its five-year average, while Coca-Cola’s price-to-earnings ratio is roughly 2% below average.
And then there are their dividend yields. At current share prices, PepsiCo yields 3.5%, while Coca-Cola yields 3.1%. On an absolute level, PepsiCo’s revenue is more attractive, but there’s more to it. While Coca-Cola’s current revenue has been around the middle of the road in recent years, PepsiCo’s is near an all-time high. Overall, PepsiCo seems like the better value if you have a value bias when investing.
To be fair, these companies aren’t exactly interchangeable, even if their beverage businesses have material overlap. That said, they are similar in many ways. For example, both have increased their dividends annually for more than 50 years, earning both spots among the Dividend Kings. Members of that elite group have proven that they can weather the inevitable ups and downs in the business world and continue to reward their shareholders along the way.
But think of the difference between them. Coca-Cola has been growing its sales slightly faster in recent years, and its revenues have been increasing at a dramatically faster pace. PepsiCo’s full-year earnings growth rates remained in the low single digits, while Coca-Cola posted low double-digit earnings growth. In light of that, it makes sense why investors like Coca-Cola more than PepsiCo right now.
But there is another, more fundamental difference between the two companies. Coca-Cola sells drinks and only drinks. It’s good at what it does, but there’s not much diversification. PepsiCo, on the other hand, sells beverages, snacks and packaged food products, and is a major player in each of these sectors. For an investor looking to gain broad portfolio exposure to the consumer staples sector, PepsiCo could provide that with a single investment. Coca-Cola can’t do that. If diversification is important to you, you probably prefer PepsiCo.
The truth is that Coca-Cola and PepsiCo are both well-run companies that investors can easily buy and hold for decades. But if you’re trying to maximize the income your portfolio generates, have a preference for value stocks, or like to own diversified companies, PepsiCo is probably the better choice for your portfolio in 2025.
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Reuben Gregg Brewer holds positions at PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Does PepsiCo’s share price drop in 2024 make it a better buy than Coca-Cola in 2025? was originally published by The Motley Fool
