Tired of the sluggish economy and its impact on the U.S. stock market -- pushing the market up one day with a good economic data, and down the next with a bad data point?

You're not the only one.

Still, the objective reality is that until the European sovereign debt crisis is resolved to institutional investors' satisfaction, economic growth in much of the developed world is likely to remain tepid, with implied volatility for the markets. In other words, share price gains will be tough to achieve, which means it's a good time to consider a defensive stock or two, like PepsiCo Inc. (NYSE: PEP).

Look for Pepsi's 2011 revenue to increase 15 percent, with a five to seven percent rise in 2012, after a roughly 35 percent surge in 2010, the latter boosted by Pepsi's acquisition of its bottlers. The Purchase, N.Y., company recorded 2010 revenue of $57.8 billion.

Beverage volume will likely be soft, but sports drinks such as Gatorade will perform better: the brand received a new marketing program and increased positioning at retail convenience outlets. Also, snack revenue should increase three to five percent.

Meanwhile, international results should shine, with emerging markets boosting the top line. A majority-interest purchase of a major Russian food/beverage company in February adds to the positive story.

Also, efficiency improvements, moderating commodity cost increases, better packaging, and marketing expertise that's second to none form an enviable beverage/snack defensive play.  

A $2.06 annual dividend -- good for a 3.3 percent yield at the current share price of about $64 -- provides a cherry on top of the sundae.

The Thomson Reuters First Call FY2011/FY2012 earnings a share estimates for Pepsi are $4.40 to $4.64, respectively, and each EPS estimate looks about five percent low, according to my analysis.

Technical Analysis: Pepsi's stock chart formed a bear hug in July, sliding down from $70 a share to about $58 a share in September. From that point, the shares meandered, but held support at or near $58 a share, then in mid-autumn pushed back above $60-level resistance. A one-month stay above the key, 50-day moving average provides further encouragement, but the shares are still below the 200-day moving average -- the toughest average to break in trading. One could view the recent move up from $58 as short-covering and/or inconsequential, but Pepsi's demonstrated business model gets the benefit of the doubt here: the shares should trade above $72 by mid-2012.

2012 Outlook: I view Pepsi as a long-term play, but if you're looking to sell within the year, it's probably best to take your profits after it rises to $68-$69, if it fails to clear $70.

Stock Analysis: PepsiCo is a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50 percent position in PepsiCo now, and another 25 percent in one month, if the U.S./global economies don't worsen substantially. I'd put a sell/stop loss at $47.

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Disclosure: L.C. Jacobs of New York, N.Y. reviews stocks on a quarterly, semi-annual, and annual basis.

L.C. Jacobs has no positions in stocks reviewed, but does own federal, municipal, and corporate bonds.


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