A recent rising market tide has lifted all boats, with shares in many cyclicals and lower-quality businesses moving higher. But given the difficult year shaping up for the global economy, high-quality, cash-generative companies with defensive characteristics are the best stocks to own for the duration of 2023 and beyond.

A perfect example of this is soft drinks-to-snacks giant PepsiCo (PEP:NASDAQ). This US multinational boasts brand strength, pricing power and a track record of beating earnings forecasts then raising guidance.

Despite an impressive long-run share price chart moving up and to the right over many years, PepsiCo has recently dipped to create a good entry point. It is a terrific total return stock, having raised the dividend for 50 consecutive years and with the company now buying back up to $10 billion worth of stock over the next three years.

Guided by CEO Ramon Laguarta, PepsiCo’s portfolio of super-resilient brands spans everything from eponymous soft drink Pepsi to Gatorade, Mountain Dew, Frito-Lay, Quaker Oats, Walkers and Tropicana. Copious cash generation enables PepsiCo to sustain investment in brand innovation and marketing to extend market share gains.

High inflation continues to squeeze consumer spending around the globe, yet PepsiCo has been able to flex its pricing power muscles and pass elevated raw material costs onto shoppers without denting demand. Treats such as fizzy drinks or crisps are affordable repeat purchases which can get consumers through the stresses of everyday life.

And brand loyalty is strong in this area; even if prices go up, people are less likely to turn to supermarket own-brand products or other
cheaper alternatives when the craving for a PepsiCo product strikes.

PepsiCo has protected profitability by raising prices successfully and there is now scope for margins to expand as commodity input costs
go down.

Following strong third quarter results (12 October 2022) showing organic sales growth of 16%, PepsiCo raised its year-to-December 2022 organic revenue growth guidance from 10% to 12% and its constant currency earnings per share growth forecast from 8% to 10%. Fourth quarter and full year results will be published
on 9 February.

According to Stockopedia, you’ll have to pay up for PepsiCo’s defensive earnings and cash flows as the stock trades on a 12-month forecast rolling price to earnings ratio of 23.3. However, this rating is a discount to a high of 31.9 times scaled in 2021 and PepsiCo also offers a 2.8% dividend yield. It is also worth noting that investors who’ve previously bought PepsiCo ‘on the dip’ over the years have been richly rewarded as the stock has subsequently continued on its upwards trajectory.

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