Stock Spotlight: Pepsico (PEP)

Looking for refuge from the recessionary storm? Stocks like Pepsico (PEP@PEP | Quote | Chart | News | PowerRating), our Featured Stock for this week, are the kind of stock that more investors are turning to in 2008.

What makes Pepsico worthy of our Featured Stock Spotlight? First and foremost, our featured stocks need to have high Long Term PowerRatings. High Long Term PowerRatings give us the confidence that the stock in question has both the financial strength and track record of growth that all stocks we invest in or trade for long periods of time should have.

Pepsico, specifically, has a Long Term PowerRating of 9. Our research into stock price behavior between 1995 and 2007 tells us that stocks that have Long Term PowerRatings of 9 have been both more reliable and better performers than the average stock. 9-rated stocks, according to our research, have been higher one year later more than 79% of the time. This compares very favorably to the average stock, which has been higher one year later less than 68% of the time.

In addition to being more reliable for investors and long term traders compared to the average stock, stocks with high Long Term PowerRatings have also simply been better performers after one year. From 1995 to 2007, for example, we found that the average stock tended to gain, on average, between 12-13% after one year. Stocks with Long Term PowerRatings of 9, however, tended to gain more than 18%, on average, in a year's time.

Once again, the advantage goes to the high Long Term PowerRating stock.

In addition to having a high Long Term PowerRating, we like our Featured Stocks to also come from an industry that has an above-average PowerRating, as well. Why? Because our work on industry group behavior since 1995 shows that the highest rated industries provide strong outperformance relative to average industries. This makes the stocks in these industries especially worth investing in.

Pepsico comes from the Processed and Packaged Foods industry, an industry with a PowerRating of 8. This industry includes such high Long Term PowerRatings stocks as Sara Lee (SLE@SLE | Quote | Chart | News | PowerRating) a 10-rated former Featured Stock of the Week, as well as the 9-rated General Mills (GIS@GIS | Quote | Chart | News | PowerRating) and 8-rated Kellogg Company (K@K | Quote | Chart | News | PowerRating), McCormick and Company (MKC@MKC | Quote | Chart | News | PowerRating), and JM Smucker (SJM@SJM | Quote | Chart | News | PowerRating).

How well have industries such as the 8-rated Processed and Packaged Foods industry fared? From 1995 to 2007, we found that industries with PowerRatings of 8 achieved average annualized returns of 20.25%. Compare this to the average industry, which provided investors with average annualized returns of 14.61%.

From a technical perspective, shares of Pepsico have been balancing on their 200-day moving average since the second half of March. After falling below that support level twice this year, PEP made a higher low in March and has been slowly working its way higher ever since. On balance, the stock is oversold as of this writing.

From a fundamental perspective, PEP has been a steady grower over the past several quarters, with profit growth between 12-16% and revenue growth between 7% and 12%. Expectations are for strong earnings growth in both 2008 and 2009, as well.

Looking for more long-term solutions to your investing problems? Don't let the volatility of this market lead you to miss out on stocks you'll be glad to have bought a year from now. Click here to get a copy of our special, Free Report on the "5 Secrets to Successful Stock Investing," and learn what you need to know as an active investor looking to invest in companies with a history of financial strength and a track record for growth. Call us at 888-484-8220 to get your copy of the 5 Secrets to Successful Stock Investing" today.

David Penn is Senior Editor at PowerRatings.net.