Betting on a Bounce in a Big Blue Chip

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

With small-cap stocks soaring ahead in the post-election period, many Alpha Algorithm strategies are looking to buy well-established blue chips lagging in the sharp rally. That is the case with this week’s Alpha Algorithm recommendation, PepsiCo Inc. (PEP).

Founded in 1898 and headquartered in Purchase, New York, PepsiCo, Inc. operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos, and Santitas tortilla chips; and Cheetos cheese-flavored snacks, and Fritos corn chips. Its Quaker Foods segment provides Quaker oatmeal, Aunt Jemima mixes and syrups, Cap’n Crunch cereal, Life cereal and Rice-A-Roni side dishes. The company’s Beverages segment offers Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Diet Mountain Dew and Tropicana Pure Premium.

PEP

PEP vs. the S&P 500 over one year

Eight Top Investment Strategies Betting on PepsiCo Inc. (PEP)

  1. High Quality Stock

The stock exhibits positive fundamentals, including high return on equity, stable year-over-year earnings growth and low financial leverage.

  1. Fundamental Strength

This is a top U.S. stock based on fundamentals measured by book value, cash flow, sales and dividends.

  1. Dividend Aristocrat

The stock is among those that have increased dividends for at least 25 consecutive years.

  1. Capital Strength

The stock is part of a strategy that seeks to outperform the market by selecting companies based on the strength of their balance sheets, long-term debt ratios and return on assets (ROA).

  1. Insider and Analyst Sentiment

One of 100 top stocks out of 5,000 U.S. stocks where corporate insiders (a director or senior officer of a company, or any person or entity that owns more than 10% of the company’s stock) are buying the stock and Wall Street analysts have recently increased earnings estimates.

  1. Low Interest Rate Sensitivity

This is a large-cap U.S. stock selected for its low volatility and positive price performance in a rising-interest-rate environment.

  1. Goldman Sachs’ Active Beta

The stock is selected according to four factors — value, quality, momentum and low volatility. These, in turn, are based on criteria including book value, sales and cash flow scaled by share price, profit/assets or return on equity (ROE), risk-adjusted returns and daily standard deviation of returns.

  1. Value Tilt

Selected using a multi-factor modeling approach, the stock is a value stock designed to enhance portfolio risk/return characteristics.

Exclusive  Markets Show Some Cracks Even as Munger’s Top Stock Soars

Recommendation

Buy PepsiCo Inc. (PEP) at market today and place your stop at $95.00. If you want to play the options, I recommend the January $100 calls (PEP170120C00100000), which last traded at $3.67 and expire on January 20, 2017.

Portfolio Update

Raise your stop in Northrop Grumman (NOC) to $243.60 to lock in at least a 15% gain in this position.

Sincerely,

Nicholas Vardy

Nicholas A. Vardy

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