Consumer spending has been slowing down for months. One recurring theme is that consumers are reluctant to buy given the rapid price inflation of the past few years.
With consumers holding back on spending, companies will have to find ways to lower prices or create new bargains to bring consumers back. Those that can get there first could stand to gain substantial market share, especially in the consumer-goods space.
One possible winner is PepsiCo (PEP). While the company’s second-quarter earnings indicated that sales were weak, Pepsi is planning on lower-priced offerings. That could help allay consumer worries.
And if Pepsi is the leader, the snack and beverage giant may reap bigger rewards than competitors.
Pepsi shares are down 12% over the past year, far lagging the overall market as consumer spending has slowed. Even in the struggling environment, revenues rose 2%, and earnings rose by nearly 6%.
Action to take: Investors may like shares at current prices. The drop in price has pushed Pepsi’s dividend to 3.3%, well over its historic average of 2.7%. And if the company can grow earnings and offset weak consumers, shares could be due for a relief rally.
For traders, shares recently started bouncing higher after hitting a 52-week low. The September $170 calls, last trading for about $2.10, could see high double-digit returns if shares continue to rise off this recent low.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.