Top DRIPs: Exxon and PepsiCo

11/26/2013 9:00 am EST

Focus: STRATEGIES

Charles Carlson

Editor, DRIP Investor

I have heard many investors argue that there just aren't any good values in this market and that stocks have moved too far, too fast. I have several rebuttals to this statement, argues Chuck Carlson, editor of DRIP Investor.

First, judging a stock's future by its past is like driving a car looking out the rearview mirror. Just because a stock is up 50% or 100% this year, doesn't necessarily imply that it has exhausted all future gains. I have seen many instances when stocks that have gone up 50%, proceed to go up another 50% or more.

I would venture to say that you have stocks in your current portfolio that have risen 200% or more since you owned them. The stocks didn't stop going up after the first 50% move. They continued to move higher over time, as the company's profits continued to grow.

The bottom line is that it is a mistake to assess a stock's potential based on what it has done in the past. Your analysis should be about the future, not the past.

Meanwhile, I continue to find stocks that offer good long-term values. Plenty of stocks still offer good entry points for investors who are looking over the next several years.

In my Editor's Portfolio, two stocks that look especially attractive for new buying are Exxon Mobil (XOM) and PepsiCo (PEP).

Exxon has bounced around for much of the year; admittedly, it is not usually a winning investment strategy to buy laggards, but I feel comfortable doing that with Exxon.

The company has a history of moving against the grain when it comes to the market's trend—holding up well during down markets and lagging a bit in up markets.

I'm willing to ride out the slow periods, knowing that I get paid well—the stock yields nearly 3% and regularly boosts the dividend—while waiting for the stock to rebound.

PepsiCo 's third-quarter profits were better than expected, as the bottom line was driven by gains in the company's snack-food business. The company's beverage business continues to struggle for growth.

PepsiCo stock generally does its best work during market periods when investors are looking for lower-volatility stocks. We are not in that sort of market cycle right now, which means investors should expect PepsiCo to lag in the near term.

However, for long-term investors, down periods represent the best time to pick up shares. PepsiCo, yielding nearly 3%, represents a solid long-term buy.

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