1 Growth stocks down 14%, available now

Growth stocks are rarely available at a discount, especially after a strong stock market rally like the one investors saw last year. But while technology growth stocks have soared, Wall Street’s enthusiasm hasn’t translated into less popular industry niches like retail or consumer staples.

Patient investors should consider taking advantage of these notable oversights. Let’s take a look at why you might want to include it. pepsico (prototype -0.92%) It’s in your portfolio after a decline since last spring.

good deal

The stock price has fallen 14% since mid-May. S&P 500 The index rose 20%. These changes make PepsiCo cheaper by several key valuation metrics.

You can own a diversified snack and beverage giant with 2.5x sales, down from the more than 3x sales investors have been paying for it over the past few years. The same goes for Pepsi’s price-to-earnings ratio, which stands at 27 today, compared to a high of around 40 in 2023.

Pepsi’s discount reflects the somewhat difficult times the business is currently facing. In early February, management expected growth to slow in 2024 after several years of above-average surges in demand.

Consumers these days appear to be less interested in stocking up on snacks and drinks for consumption at home. As a result, demand growth is slowing back to normal levels. And by 2024, inflation will be back under control, reducing the need for price increases. This is another hurdle for Pepsi’s key organic sales metrics.

However, the outlook for sales growth remains positive and even better for the bottom line. Pepsi executives are calling for net profits to grow at a much faster rate than sales for the second straight year, expanding the company’s profits. Management expects earnings to improve by at least 8% or sales growth to double.

Cash flow and cash returns

Shareholders will also benefit from Pepsi’s abundant cash flow, providing investors with higher direct cash returns. Over the past year, operating cash flow was $13 billion, up from $11 billion in 2022.

Operations to cash (TTM) data from YCharts.

As a result, investors can expect to receive direct cash returns of just over $8 billion in 2024, split between $1 billion in share buybacks and $7.2 billion in dividend payments. Pepsi is generating all this cash with the help of positive trends such as price increases, cost savings, and increasing global sales volume. Success on this front has given management confidence that it can increase its annual dividend by 7%, on top of last year’s 10% increase.

looking ahead

Management believes that the right growth strategy is in place, based on launching innovative products in the snack food segment and advancing into high-growth areas of the beverage niche. Pepsi is particularly interested in beverages outside of its core soda brands, such as water, sports drinks and energy drinks.

“We are pleased with our results in 2023, having successfully navigated another year of soaring inflation, macroeconomic volatility, geopolitical tensions and international conflict,” CEO Ramon Laguarta said in a press release. “We are confident that our business will perform well in 2024 amidst changing market conditions.”

Investors will want to keep an eye on this evolving situation, which will likely lead to a slowdown in sales growth compared to past years. But short-term pessimism allows consumer staples stocks to be held at attractive discounts. Considering its good long-term growth potential and potential for cash flow growth, Pepsi stock seems worth considering as a buy right now.