How I've approached my Pepsi Investment

Ok, so I've talked so far about why I'm up to this, I've shared a couple of my first lessons I've already learned holistically, now I guess it's time to show what little I really know and start digging into each of these stocks I own 1 by 1.  Talk about what my investing thesis was, what I felt I "knew" to back that up and what I've done right and wrong up to this point.  I guess I'll just pull one of my 7 out of my hat and start with that one.  Today's choice is...  Pepsico (PEP).

Pepsi was one of the first stocks I wanted to own, but I have yet to have filled my position on it.  For those who live under a rock, Pepsico is a mult-national company which focuses on the production and distribution of a wide variety of non-alcoholic beverages and snacks (uhh, Pepsi for example?).  I've seen numerous interviews with the CEO Indra Nooyi and I must say I was rather impressed with what I heard and saw.  She has a vision of not just making profits, but also has a lot of social awareness with the company too.  I've noticed there's a bit of a popular trends for foods considered "good for you."  You see a lot of advertisements for low fat, high fiber, low cholesterol, low sodium and other phrases for healthy being pushed all over.  Whole Foods - a company focused strictly on organic, natural, and healthy foods has been doing well in the markets, too.  On top all of this, Pepsi has been performing well.  It's been consistently meeting or beating expectations and has set forth a growth plan which projected them to grow earnings at a 10% clip over the next few years at the time I started following them.  Balance sheet was strong, getting stronger and stronger overseas sales, but there were some downsides.  North America was suffering - we were still coming out of the "Great Recession" and sales weren't strong.  The Quaker Oats division had a serious identity crisis and was costing the company money, and Gatorade was losing it's edge as the premier sports drink.  To that last statement, they were just in the process of launching their G series of drinks in the hopes of recapturing that edge and I thought they'd do so.

I was rather strict on buying this company.  I wanted it because it was something safe for my portfolio in the event that the markets turned south, and I wanted a generous yield for what I was buying.  At the time I was researching it, yield rates were at about 2.85% and I had set a goal of 3% before I'd buy my first 25% position.  I got lucky.  Things started turning south for a little bit and PEP came to my target price and I bought in.  I, of course wanted it to keep pulling back, but it didn't - it turned right back around and started taking off.  High quality problem, I suppose.  So I just kept watching it, waiting for that pullback that never really came.  There were a couple times during the year when it came right near my original buying point, but I thought "If I already bought some here, why would I buy more - especially when it's pulled back 10% now?  The problem was that the 10% drop at this time was due to market wide sell-offs primarily due to US government and the uncertainty they were forcing into the market with things such as passing "Obamacare" and other factors which were of concern to investors at the time.  I should've been buying in another position at this point.  Why?  This stock is exactly what you want your hands on when there's uncertainty in the market.  The thesis and fundamentals hadn't changed at all, its price dropped 10% from it's recent highs.  On top of that, it was at most pennies away from my 3% yield mark again.  What a fool!  I got too greedy oping it'd go a lot lower.

Eventually, I ended up buying another position, conceding to the fact that the price was going up and not likely to come back down to my original points again.  Many times this is a risky way to play things, I was increasing my cost basis and reducing potential profits, however, I was buying on another small and very short-lasted dip and it turned out to be a good choice.  The stock ended up taking off nicely from there.  Eventually I was up around 15% - literally in the course of a few months.  The markets were alive again, but then we were into 2011.  Commodity prices soared and it started affecting margins.  Pepsi announces in one of their quarterly conference calls that they were placing guidance for the year down towards the low end due to these pressures as they worked at pushing through some price increases.  At the time of this call, the commodity costs were already starting to fall some again, so I figured this wouldn't last long and didn't sell anything.  Once again, man was I stupid and greedy!  You'll find as I'm starting through all of this it'll be a common story line.  Japan earthquake, US govenment fights over it's debt ceiling, Europe comes on the attack with a risk around financial Armageddon with the risk of any or all of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) of defaulting on their sovereign debts.  The market gets hammered and Pepsi's Yield was in the mid 2% range.  A bright person would recognized as these macro impacts started hitting that they should at least pare positions - take some profits so you have cash in case the bottom falls out.  Not what I did and I paid for it.  Despite increasing their dividend as Pepsi is famous for, the stock price fell through the 3% yield and down to prices similar to where I started to begin with.  Yep, lost every little bit of my unrealized gains thinking I'd just take the pullback to buy some more before it takes off again.  I did buy a little bit more at one point, but my position still isn't full and the stock still sits around 3%.  I watch it closely now.  The price increases went in successfully and commodity prices have fallen, adding 2 different reasons why margins should rise going into the 4qtr of 2011.

As of right now, I'm even.  The company still has the same attractiveness it had almost 2 years ago, but this market is undoubtedly tough.  I'm carefully trying to pick my price points to fill my position.  This time if the price rises, I'll hopefully learn to trim my position if something major can affect the stock price.  The key will be making sure I understand not only the impacts to the company internally, but the macroeconomic perception as well.  After all, if the global economy isn't expected to do well, they sure won't expect any companies to do well either.

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