Pepsi: Why It's A Clear Buy On The Dip

| About: PepsiCo Inc. (PEP)

PepsiCo, Inc. (NYSE:PEP) engages in the manufacture, marketing, and sale of foods, snacks, and carbonated and non-carbonated beverages worldwide.

The stock has taken a hit and even when the market turns green, the stock still goes down. There are fears that Coca-Cola (NYSE:KO) will lower margins in order to compete with Pepsi. Coke is set to lower margins in order to gain market share from Pepsi. In the soda space, Coke has a great management team with a strong brand. Not to say Pepsi doesn't though. Pepsi has a fantastic snack food segment that continues to add to the bottom line.

Analysts are worried that Pepsi will not be able to gain from North America anymore. This is a strong possibility, but the fact is the company is now starting to look at growth markets such as China. Pepsi continues to invest billions in the country hoping that the Pepsi brand will stick in a country of a billion people.

Pepsi is also worried its margins will shrink on higher corn prices. This is an issue as corn is a major ingredient of its soda and snack food segments. The poor economic outlook is starting to cause a decline in corn prices.

Competition from companies such as Diamond Foods (NASDAQ:DMND) is said to be taking market share. However, I do not believe this is the case. Pepsi has much stronger brands and has deals with companies such as Wal-Mart (NYSE:WMT). If you go to a Wal-Mart store, you will see Lays chips there, but not Kettle. Not to mention that Diamond has different snacks than Pepsi. Diamond has snacks such as nuts and popcorn, while Pepsi has items such as Quaker Oatmeal. Diamond's acquisition of Pringles will not really have a different impact on Pepsi either, as both brands have competed with each other in major chain stores such as Wal-Mart for a long time.

I believe the market is dropping the stock price on fears of corn prices and competition, but I believe these fears are overblown. The company has a cheap valuation and best of all it is one of the strongest paying dividend companies in the world. The company has increased its dividend by almost 300% in the last 10 years. The yield now stands at 3.4%. The stock has a forward P/E of 12.5.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.