Coke (KO) and Pepsi (PEP): Soft Drinks In A Soft Economy

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Coca-Cola (KO) and Pepsi (PEP) keep making new highs. Yesterday, Coke hit $57.33, a few pennies from its 52-week peak. At $72.62, the same is true of Pepsi (PEP). So far this year, both companies have out-performed the market by wide margins.

Conventional wisdom is that the companies are now diversified. They have a large portion of their business overseas. But, the have real headwinds. Commodities prices are rising. Soft drinks are not the medical community’s No.1 suggestion for a healthy diet.

No, the stocks are doing well for the same reason that McDonald’s (MCD) is. People can always afford a can of Coke. Even when making the mortgage payments is tough.

As the economy contracts, Coke and Pepsi are signature businesses for the kind of operation that will not get hurt. What they sell is inexpensive, and almost everyone likes it.

Douglas A. McIntyre