3 Stocks That Look Just Like PepsiCo in 1978

9/18/17

By Steve Symington, MotleyFool

Few companies can rival PepsiCo's (NYSE:PEP) long track record of value creation for shareholders. Including dividends, a mere $10,000 invested in Pepsi at the beginning of 1978 would be worth more than $1.3 million today. And that's not to mention the various spinoffs from which Pepsi investors have benefited over the same period, which would have resulted in significant additional stakes in companies like Yum! Brands (NYSE:YUM) (the parent of KFC, Taco Bell, and Pizza Hut, spun off in 1997), and Fisher-Price (spun off in 1991, then acquired by Mattel in 1993).

Of course, it's easy to pine over missed opportunities. But that raises the question: Are there any companies that -- from an investor's perspective -- look today like Pepsi did in 1978?

Three top Motley Fool investors think so. Read on to see what they had to say about Boston Beer (NYSE:SAM), Under Armour (NYSE:UA)(NYSE:UAA), and Equifax (NYSE:EFX) in that vein.

Many pointing toward floating dollar signs, with business chart indicating success

IMAGE SOURCE: GETTY IMAGES

Cheers to decades of potential growth

Steve Symington (Boston Beer): With less than 2% of the U.S. beer market and a market capitalization under $2 billion as of this writing, craft brewing company Boston Beer should enjoy a long runway for growth over the next several decades. While it brews a handful of massively popular brands, including Samuel Adams, Angry Orchard, Coney Island, Twisted Tea, and Truly Spiked & Sparkling, the company has plenty of room to continue expanding its product lines -- as Pepsi has so effectively done over the years -- to follow the changing tastes of consumers.

But with Boston Beer stock down almost 10% so far in 2017, it's evident the company is facing near-term challenges. Between a general softening of the craft beer market, and market share lost thanks to steeply increasing competition, Boston Beer has struggled in recent quarters.

However, it also made significant progress on the growth front, turning in a better-than-expected second-quarter report in late July. In fact, Boston Beer shares skyrocketed 15% in a single day after the brewer told investors that revenue had climbed a modest 1.3% to $264.7 million, while earnings per share rose 14.1% to $2.35. Both figures handily outpaced the market's expectations, which called for earnings of $1.41 per share on revenue of $247.9 million.

Perhaps most telling is that Boston Beer's depletions -- the measure of the rate at which its products are getting shipped from warehouses to consumer outlets -- fell "just" 3% year over year in Q2, as weakness in sales of its Samuel Adams, Angry Orchard, and Coney Island brands was partially offset by strength Twisted Tea and Truly Spiked & Sparkling. But that was a huge improvement from a 14% decline a quarter earlier. The credit for that relative strength, according to Boston Beer founder Jim Koch, went to improved brand messaging and a positive consumer response to its innovative beer varieties.

It seems, then, that Boston Beer is finally finding success in honing its approach to keep consumers coming back for more. So for investors who buy shares now while it's still a relatively small business, I think Boston Beer stock could rival Pepsi's returns over the long haul.

The wealth-building power of timing and trends

Jason Hall (Under Armour): Pepsi was far from a new company in 1978, with a history that stretched back nearly a century even then. That's a reminder that the best growth stocks don't have to be brand-new, unproven businesses. In many cases, companies that have proven their chops for years are the ones with the best long-term growth prospects.

Under Armour is an excellent example of just that. Founded 20 years ago, it has been growth machine for years, delivering double-digit quarterly sales growth for an amazing 10-straight years at one point. But recent struggles in North America have slowed things down, as a number of its biggest retailers have struggled or gone out of business over the past year. That's weighed on the near-term results in the company's biggest segment, and led investors to punish the stock.

But it's also masked the huge international opportunity for the company. Revenue outside North America accounts for only 20% of sales (by contrast, non-U.S. markets contribute the majority of revenue and earnings for competitors like Nike). Revenue in North America was flat last quarter, but Under Armour's international sales increased sharply: Europe, Middle East, and Africa (EMEA) and Asia-Pacific regions were up 57% and 89%, respectively. Furthermore, management has a plan to reignite growth in North America and bring costs down at the same time.

For investors willing to bet on a founder-led innovator with a huge growth opportunity for decades to come, Under Armour is worth a close look.

Is today's scandal tomorrow's opportunity?

Chuck Saletta (Equifax): In the late 1970s and early 1980s, PepsiCo (NYSE:PEP) was enmeshed in a series of accounting scandals. As awful as that was at the time, in the decades since then, PepsiCo has delivered solid overall returns as it cleaned up its act and expanded its business. In credit reporting titan Equifax's (NYSE:EFX) recent massive data breach, we may be seeing a similar near-term scandal that could lay the foundation for a similar long-term recovery.

Equifax's shares dropped more than 13% on the news of the breach, and its handling of the hack has been ridiculed as an incredible botch from several perspectives. Yet despite the fact that Equifax failed miserably at protecting consumers' personal data, and failed equally miserably in how it responded to that failure, odds are that it will get past the issue, and potentially even emerge stronger as a result.

The New York Times is reporting that it's highly unlikely that Equifax will be shut down as a result of the breach. The most likely outcome is some enhanced regulatory oversight and boosted security procedures. Given that Equifax is one of only three major credit reporting agencies , its services will remain in demand as long as people need to borrow money. As Equifax rebuilds its reputation and enhances its security, odds are that, like PepsiCo's scandals of the past, this too shall pass.

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