The Top Stock In Entertainment

(Top stock picks) Twenty-First Century Fox (NASDAQ: FOXA) is now a media conglomerate. After spinning out of News Corp, it's been able to focus on becoming a more profitable TV and film content creator.

It has a diversified portfolio, with various channels, including Fox News, FSN, Fox Sports 1, FX, FXX, Speed, and National Geographic. However, that's not the true growth story. Fox is looking to position itself as the top media giant, going up against Disney (NYSE: DIS) and Comcast (NASDAQ: CMCSA) , by shifting more of its business model to cable networking. 

Media giants with differing models for growth

Disney's main revenue driver remains its media networks, which includes the likes of ESPN, Disney Channel, and A&E. Its second key revenue driver is parks and resorts.

And although Comcast generates revenue from theme parks and films, its major revenue driver is cable communications, a segment that includes offering video, Internet, and voice services. Now it's looking to increase its exposure to this area of the market. Just under two months ago, Comcast agreed to buy Time Warner Cable, in a deal that's valued at over $40 billion. It would make Comcast the undisputed leader when it comes to TV, Internet, and phone subscribers, covering over 30% of Americans.The merger will face antitrust hurdles and at the very least will require concessions by Comcast, such as divesting certain subscribers to competitors. 

Meanwhile, Fox gets the majority of its revenues from cable networks and film production. The company plans to shift more of its reliance for revenue generation to cable production going forward, and away from the more competitive film industry.

Fox also has a 33% stake in Hulu, along with co-owners Disney and Comcast. Hulu is one of the key players in the online streaming space, one that DirecTV offered to buy for $1 billion just under a year ago. There could be a solid opportunity for Fox to monetize this asset in the future. Just look at the success of Netflix, shares of which are up over 100% in the past year.

Look for less reliance on film from Fox going forward

Disney has been a big winner in the entertainment space over the past half-decade. After buying Marvel for $4 billion in 2009, Disney has had some big successes by bringing some of the big comic-book hits to life on the big screen. Last weekend, its Captain America: The Winter Soldier had the best opening weekend of any movie this year. Its animated film,Frozen, was also also a huge success, becoming the top-grossing animated film of all time. 

Meanwhile, Avatar was a big hit for Fox, but we still have another two years before Avatar 2hits theaters. Fox also plans to bring Charlie Brown to the big screen. The initial plans are for the Peanuts movie to be launched in late 2015.

However, it's rising cable affiliate fees that Fox will look to capitalize on going forward. Last year, affiliate revenues made up 28% of revenues, up from the 22% in 2011. With affiliate fees expected to continue rising, Fox is looking to make its cable network programming segment more of a contributor to revenues. That includes gaining a larger presence in the sports market. To that end, it has launched a new network, Fox Sports 1.

The sports entertainment business has proved to be a lucrative one. Disney has had a lot of success with its ESPN franchise, and now Fox wants a piece of the pie. Fox already has a number of strong regional sports networks, including FSN. Its Fox Sports 1 network is expected to help give the company a larger presence in the world market. It already has the rights to various events related to soccer, UFC ultimate fighting, and Major League Baseball.

Bottom line

Fox is a very compelling investment. Its dividend yield isn't quite as high as its major peers, but there's room for growth there. The dividend yield is only 0.7%, but the payout is only at 10% of earnings. The key growth drivers include rising affiliate fees and a greater presence in the sports market. Fox's P/E ratio is also only at 14.5, which is a steep discount to other major media companies, as Disney and Comcast trade at P/E ratios of 22 and 19.6, respectively. For investors looking to gain some exposure to the media market, Fox looks to be worth a look. 

Why Dividends Won't Keep Tobacco Investors Interested Forever

The tobacco industry as a whole is a cash-flow-generating machine. The tobacco companies are paying out dividend yields that are well above other companies'. However, the question is, how long can tobacco companies continue paying out relatively high dividend yields with tobacco sales in decline? We're also seeing a number of issues being raised about e-cigarettes, which are supposed to be a key growth driver for the industry.

A bumpy road to growth

Many of the top tobacco companies are betting big on electronic cigarettes. Lorillard (NYSE: LO) owns the leading blu e-cig brand,  while Reynolds American (NYSE: RAI) has been pushing its own brand, Vuse.

While e-cigarettes are expected to be one of the key drivers of the tobacco industry, there are a few issues. The public use of e-cigarettes is already banned in Brazil. A couple of cities in the U.S. are restricting the use of e-cigs in public places. And the FDA is looking to gain authority over e-cigarette regulation. This comes just as the CDC is seeing an uptick in poison-center calls due to exposure to the liquid nicotine in e-cigs. 

Why investors still love big tobacco

Lorillard and Reynolds American are two companies at the forefront of the industry, after news surfaced last month that Reynolds American had hired investment bank Lazard to help with analyzing the viability of buying Lorillard.

The merger would bring together two of the nation's largest tobacco companies. However, the immediate question is the antitrust hurdles. Worth noting is that Reynolds American and Lorillard's combined revenues would still be nearly 25% below that of the No. 1 U.S. tobacco company by sales, Altria

One of the main reasons investors continue to love tobacco companies is their high dividend yields. Thanks to solid free cash flow-generating abilities, Lorillard and Reynolds American pay dividend yields of 4.7% and 5.1%, respectively-- over double the S&P 500 average dividend yield. And each is generating annual free cash flow that's more than 5% of its market cap. That's a solid free cash flow yield.

More trouble on the horizon?

Besides the issues with e-cigs, another big overhang for Lorillard is the potential for further scrutiny for menthol cigarettes. Lorillard is the leader in menthol brand cigarettes, with its Newport brand. The FDA continues to push to restrict menthol cigarette sales, or possibly ban them altogether. This comes as menthol cigarettes are claimed to be more addictive. The European Parliament recently voted to ban menthol cigarettes by 2022.

On the other hand, Reynolds American might be in better shape. It has been introducing products that appeal to customers' changing demands. It has already launched a nicotine replacement product, called Zonnic Gum, which saves smokers from the harmful effects of tobacco. Reynolds American is also upping its smokeless offerings. This includes offering new mint favors for Camel brand snuff products, Camel SNUS.

The best bet on tobacco

With all that said, what might be one of the best plays in the tobacco industry is the international leader. Philip Morris International (NYSE: PM) owns nearly 16% of the international (excluding the U.S.) market share. It also pays an impressive dividend that yields 4.6%. Since it operates outside the U.S., it's not facing the same FDA scrutiny as other tobacco companies.

And with the leading international position in the cigarette market, Philip Morris is looking to boost its presence in unconventional cigarettes. Earlier this year, it entered into an agreement with Altria, where Altria will market two of Philip Morris' heated tobacco products in the U.S. And although it doesn't have a presence in the international e-cig market, it plans to enter it very soon.

Bottom line

While the tobacco industry is still a great place to find solid dividend yields, the recent issues should give investors a reason to have a closer look at their risks. While Philip Morris does have headwinds, they aren't quite as pronounced as the ones Lorillard and Reynolds American face. For investors still interested in gaining exposure to the tobacco industry, Philip Morris looks to be a great stock worth considering.

Trusting Mark Zuckerberg's Moon Shoot Strategy

Many investors were scratching their heads after Facebook (NASDAQ: FB) paid a total of $21 billion for messaging app WhatsApp and virtual-reality company Oculus. However, this strategy is nothing new. Many tech companies have acquired smaller players in hopes of finding the next big trend, and Mark Zuckerberg could be on to something with these acquisitions. 

How making "surprising" acquisitions can pay off

Google (NASDAQ: GOOG) is a tech company that has used acquisitions to find the next big thing. Back in 2005, the search company made what seemed to be a head-scratching purchase of Android. Since then, Google has grown Android into the largest mobile operating system on the planet. It also hit the jackpot with its YouTube purchase in 2006. Google bought YouTube for less than $2 billion. It's said that YouTube is valued at more than $20 billion today. 

Many of the major tech companies are trying to figure out what the future of computing will be. Facebook is making a big bet that virtual reality will be the next social platform. While the acquisition won't add revenue over the near term, it's more of a long-term bet. Think of it as an option play on virtual reality. And while Oculus' main feature is its headset, Facebook believes the future will be in generating revenue from software, including the opportunity to advertise in the virtual-reality space.

One of Facebook's biggest rivals for online ad spending is Twitter (NYSE: TWTR) , which is making its own bets. Most notably, Twitter is attacking the "second screen." Twitter wants to be an interactive tool for those watching TV. Already, there are a large number of users watching TV and simultaneously tweeting about it. Last year, Twitter made its largest acquisition to date, buying a social TV company. Ultimately, Twitter could be able to attract ad dollars from TV companies. That's would be a big opportunity, as TV advertising continues to be the largest medium for ad spending in the U.S.  

Facebook's acquisitions won't negate its other successes

Whatever its future plans, Facebook is a social networking powerhouse with a strong presence in advertising. As money continues to flow into online advertising, both Facebook and Twitter should be big winners. eMarketer expects mobile advertising to reach $63 billion by 2017. Compare that to $18 billion spent on mobile ads in 2013. Over that same time period, Facebook's market share is expected to grow from 18% to 24%. 

Investors should take note of the success Facebook is already seeing on mobile. Not to mention the fact that Instagram continues to grow nicely. Last month, Facebook hit 1 billion monthly active users on mobile, up from 945 million at the end of 2013. At the same time, Instagram was up to 200 million active users, compared to 150 million during the fall of 2013. Facebook is also still very early with its strategy of video advertising.  

Bottom line

Facebook is still one of the more expensive names in the tech industry, albeit not as expensive as Twitter. Twitter's price-to-sales ratio is north of 25, while Facebook's is below 15. And while Twitter is looking to tap a very large TV market, it appears that Facebook is a bit more forward-looking. The company is actively trying to make its social network more interactive. Virtual reality could go a long way toward doing so. It will take some time before we know if Oculus can do for Facebook what Android and YouTube have done for Google, but it's a bet that Facebook needed to take.

The War Against Obesity Is Just Beginning

You would think that doctors and patients alike would be flocking to an anti-obesity medication approved by the FDA. Obesity is an epidemic in the U.S., where 35% of the population is considered to be obese and some medical sources regard it as a disease.

The conditions related to obesity are vast, including heart disease, stroke, type 2 diabetes and certain kinds of cancer. The annual medical costs are estimated to be $147 billion and the average medical cost for an obese person is estimated to be $1,429 more than a person of normal weight.

This is why many investors regarded the FDA approval given to Belviq from Arena Pharmaceuticals (NASDAQ: ARNA) as a golden investment opportunity. Yet, the progress to date hardly supports this belief.

The opportunity is still there
Approval was delayed by nearly a year, before finally launching in the second quarter of 2013. There were initial problems regarding the extent of insurance coverage and the company decided to withdraw its application for marketing authorization in Europe for fear of eventual rejection.

However, the company has a strong marketing partner in Eisai (NASDAQOTH: ESALY) of Japan, which is providing plenty of support, including a doubling of its sales force. The insurance coverage picture is improving, which would substantially expand the market. In addition, it is being tested for weight loss in combination with phentermine as well as for smokers who wish to stop smoking. Meanwhile, sales for more than two quarters have only touched $17 million.

Arena is working hard to expand sales by expanding the scope of its agreement with Eisai to include commercialization rights throughout the world except for South Korea, Taiwan, Australia, and New Zealand. It has also received upfront payments of $60 million and a milestone payment of $500,000. Arena's development pipeline includes several treatments such as APD371 (phase I for pain) and APD334 (phase I for conditions concerned with autoimmune diseases).

How things worked out
During the fourth quarter, Belviq sales came in at $7 million, some 66,000 bottles were shipped, and the ASP was $108. Sales of $7 million were ahead of the previous year, but well short of the consensus estimates of $35 million.

Meanwhile, Arena's loss for the full year was $0.09 per share, compared to a loss of $0.45 per share last year, against the consensus estimate of an $0.11 profit. Full-year revenue was $81.4 million against the consensus estimate of $107 million. For 2014, the company expects to generate most of its revenue from Belviq and the consensus estimate is $49 million. This is disappointing, but there will be an improvement with increased insurance coverage and more education for physicians and patients.

Other major obesity drug maker, VIVUS (NASDAQ: VVUS) has seen similar weakness. After its fourth quarter earnings report, its shares fell nearly 15%. Sales of its obesity drug, Osymia, saw similar sales as Arena's Belviq, coming in at $7.7 million. This actually met estimates, compared to Belviq's miss.

Meanwhile, it only brought in $62.09 per prescription for Qsymia, well below Belviq. VIVUS is down 40% year-to-date, with a number of analysts lowering their price targets. Most recently, Piper Jaffray slapped VIVUS with a $3 price target while shares are currently trading close to $5.50. 

Arena receives 31.5% of net sales. In order for it to generate $18 million, it needs to generate net sales of around $60 million and gross sales twice that amount. In the best case scenario, gross sales could get above $200 million in 2014, of which the company would receive roughly $36 million. In a more conservative scenario, these numbers could be $170 million and $30 million, respectively.

Bottom line
The obesity market is huge and the scale is unlike anything in the market. Certainly there are many more people interested in losing weight than these sales figures would indicate. Another thing to keep in mind is that Belviq could be used for smoking cessation. If this happens, it would help with reimbursement and create an easier path into the European market. For investors with an appetite for risk, Arena might be worth a look.

Retro Style Clothing As An Investment Opportunity

(Top stock picksIn today's apparel market, there appears to be a "no man's land." Much of the conservation is focused on the triple A's, which includes Abercrombie & Fitch (NYSE:ANF), American Eagle (NYSE:AEO) and Aeropostale.

However, these retailers appear to be quickly falling out of fashion as teens move away from logo-based clothing. In their place, the likes of Forever 21 and H&M, dubbed "fast-fashion" retailers, have taken reign of the apparel market. These companies turn over their merchandise very quickly, allowing them to stay atop the trends.

Yet, there's a large market to be served between the logo-based and fast-fashion retailers. That's the no man's land I was referring to. This area is wide open, but there is one company that could be a great investment in the space. 

That's where retro styles come into play
For  shoppers looking for "hipster" and retro styles, the market leader is Urban Outfitters(NASDAQ:URBN). Urban Outfitters has a trio of store brands that attack the apparel market from a variety of angles. Its three key brands include Urban Outfitters, Anthropologie and Free People.

Like all retailers, Urban Outfitters has been negatively affected by the weather. But Urban Outfitters' most recent weakness can be attributed to misses in its fashion offerings. This has led to markdowns at Urban Outfitters and excess inventory left over from the holidays. It's looking to fix that by focusing more on higher-growth areas and less on apparel. 

Where Urban Outfitters is at today
Urban Outfitters' multi-brand strategy is a big positive. It's able to cater to a variety of shoppers with its three brands. The other interesting aspect to Urban Outfitters is that unlike the major apparel retailers, its merchandise assortment includes some higher-growth areas, such as footwear and home furniture.

Being a multibrand company, many investors miss the fact that Anthropologie generates almost as much revenue as the Urban Outfitters brand. So, despite the weakness in the Urban Outfitters brand, the company as a whole is still performing well. Comps were up 10% and 20% for Anthropologie and Free People, respectively, last quarter. On the other hand, Urban Outfitters' comps were down 9%.

Its new plan for the Urban Outfitters brand is to increase its design offering and focus on the 18 to 28-year-old demographic, essentially moving away from teen customers. This will help diversify the company from the volatile teen apparel market.

Teens are just too fickle
With apparel trends in teen fashion changing faster than ever and teen unemployment over 20%, it's a tough time to be in teen retail. As a result, Urban Outfitters is looking to make an exit. 

That's because despite the weakness in teen retail, Urban Outfitters has been seeing progress in other areas, areas that it plans to focus more on. During its fiscal fourth quarter, footwear retail sales were up 54% year over year at its Free People stores. At Anthropologie, its BHDN bridal concept grew 50% year over year.

Sizing up the competition
Shares of Urban Outfitters are down almost 5% over the last year, but the S&P 500 is up over 20%. However, Urban Outfitters is doing better than other retailers, where both Abercrombie & Fitch and American Eagle are down over 15%. This comes as Abercrombie & Fitch and American Eagle are both still heavily tied to teen apparel. 

As Urban Outfitters makes its exit from teen retail, it'll have to worry a lot less about what the triple A's are doing. Unless, of course, they decide to take Urban Outfitters' lead and follow suit, but that doesn't appear likely.

Abercrombie & Fitch and American Eagle both trade at a 0.75 price-to-sales ratios, which compares well to Urban Outfitters' 1.8. Yet, their cheap valuations don't necessarily make them buys. During the fourth quarter, American Eagle saw comparable-store-sales down 7% year over year, and it's expected to post an earnings decline of 10% for fiscal 2015 according to analysts.

However, Abercrombie & Fitch appears to be making some improvements. It plans on turning its Hollister brand into a fast-fashion retailer. Forever 21 and H&M have had marked success in the space, so it will be interesting to see if Abercrombie & Fitch can replicate that. 

Bottom line 
The likes of Forever 21 and H&M have had an impact on the apparel market, but there is still room for other retailers that offer unique fashion styles. The apparel industry is trading at an average P/E of close to 20, but Urban Outfitters trades at a  P/E of 16 using next year's earnings estimates. For investors searching for exposure to the apparel industry, Urban Outfitters might be worth a look. 

CBS Making The Move Out Of Outdoor Ads A Big Positive

CBS (NYSE: CBS) spunoff its outdoor advertising segment earlier this year. While we're not huge fans of the entertainment market, we are of spinoffs. The move will help CBS focus, but the outdoor ad company has an impressive opportunity for yield. This includes spinning off its REIT.

Many applauded the move feeling that the outdoor ad business no longer fit within the content-focused CBS. In fact, Mr. Moonves himself said that synergies between the companies were non-existent and that ‘most of what Outdoor sells is local, most of what the network sells is national.’ CBS Outdoors generated $1.3b in revenue last year and is profitable, however, revenue growth is basically non-existent. The company has heavy exposure to the New York City & LA markets and it may try to expand via acquisitions. Although it isn’t a REIT yet, the company does plan on paying out a quarterly dividend of $0.37 per share which translates into a ~5% yield. Additional information on the company can be found within its S-11 filing and there are a few other publicly traded peers such as Clear Channel Outdoor Holdings (CCO) and Lamar Advertising (LAMR) which can be used as comps. It’s worth noting that Lamar is also pursuing REIT status, although the process is taking a long time.

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Making Money In Private Foods

When you shop at your local grocery store, there's a good chance you like to save the most money possible. That usually involves buying store-brand products, which are called private label products. 

Private-label foods have become a fundamental part of supermarkets and grocers business models. This comes as private labels are becoming brands in and of themselves, where grocers are leveraging private-label products to distinguish themselves, including Kroger with the Simple Truth brand and Sam's Club Artisan Fresh brand.

What's the best way to play the niche food market? 
ConAgra Foods (NYSE:CAG) is the market leader in producing private-label foods. When it bought Ralcorp in 2012, it became the nation's largest private-label food producer. 

ConAgra makes a number of brand-name items too, including Chef Boyardee, Healthy Choice, Marie Callender's, Orville Redenbacher's, PAM, and Peter Pan. It really caters to the broad food market.

Not only is ConAgra's presence in grocers and retailers impressive, but it also has a presence in the business-to-business market; it sells to restaurants and food-service companies. These items include various vegetables and grain products.

How things are shaping up for 2014
After missing fiscal first-quarter earnings estimates, ConAgra redeemed itself with a 12% earnings beat in the fiscal second quarter. However, a slashing of fiscal 2014 earnings guidance has pushed the stock down to near 52-week lows.

The market has overreacted to the company's news that the benefits of the Ralcorp acquisition might be delayed. Initially, ConAgra was looking for Ralcorp to add $0.25 to earnings in 2014. That number has been revised downward to $0.20.

Still a cheap income stock
One aspect of ConAgra that investors should be most excited about is its 3.5% dividend yield. Food-processing companies generally offer lower dividends, with the industry average being 2.2%. ConAgra has increased its dividend payment in each of the last five years at an annualized rate of 6%. Meanwhile, other major private foods company TreeHouse Foods (NYSE:THS)  doesn't pay a dividend.

ConAgra trades at a hefty discount to its peers, at only 12.5 times next year's estimated EPS of $2.23. The industry average earnings multiple is 18 times, and ConAgra's five-year average is 16.5 times. Over the long term, ConAgra believes it can grow earnings at an annualized 10%. Using that estimate puts its price-to-earnings-to-growth ratio at slightly more than 1.

Meanwhile, TreeHouse's forward P/E based upon next year's estimated earnings is 18 times earnings. This private foods company is suing Keurig Green Mountain over anti-competitive practices in the K-Cup market. For investors looking to invest in TreeHouse, the key will be the private-label coffee business. Its single-serve coffee business generated sales of $180 million last year, with expectations to grow to $250 million next year. However, with its valuation, ConAgra looks to be the better bet on the private foods market as a whole.

Upside to the shares
ConAgra trades a forward P/E of 12.5 based on next year's earnings estimates. This is below its five-year average P/E of 16.5. The company's market share and partnerships with major retailers provide it a solid economic moat.

ConAgra continues to perform nicely for shareholders, with revenue up near decade highs over the trailing-12 month period. Its free cash flow margin is above 7%, and the company's dividend payout as a percentage of free cash flow is only 50%.

Bottom line
ConAgra is one of the best plays on the private food market. There aren't many stocks that give you that kind to access to the industry. It's also one of the best income plays in the industry. The recent selling pressure has presented investors with an enticing buying opportunity.

Foot Locker: The Best Play In Shoe Retail

  • Foot Locker (NYSE: FL) has already had an impressive run, but more upside's to come with the help of a renewed focus on women's shoes.
  • Its core business of basketball shoes remains solid and there could be some pent-up demand for running shoes.
  • Remodeling is bringing in more customers and boosting sales conversions.
  • The retailer is a decent income play, yielding 2%, with plenty of upside to the stock, potentially to $58.

With a strong rollout of new basketball shoes prior to the All-Star weekend last month, the major shoe retailers have been performing well. Couple that with a solid earnings beat, and you have Foot Locker (FL) already up 10% year to date, compared to an S&P 500 that's flat. Yet, as Foot Locker continues to expand its reach, with a renewed focus on kids and children, shares are poised to continue outpacing the market.


Why Pepsi Doesn't Need Sodastream

The beverage market really is a battle of two companies: PepsiCo (NYSE:PEPand Coca-Cola (NYSE:KO), the two largest beverage companies in the world. This battle is making its way into consumers' kitchens. Coca-Cola has inked a deal with Green Mountain Coffee Roasters (NASDAQ:GMCR), which has the potential to do for cold beverages what the Keurig has done for hot beverages.

Home beverages present a big opportunity
Shares of Green Mountain got a massive lift on the news, up more than 40% in a single day; trading at levels that the company hasn't seen in more than three years. Meanwhile, because of the Coca-Cola and Green Mountain deal, there's new speculation that PepsiCo might make a deal with SodaStream. The question has now become what does this mean for PepsiCo?

PepsiCo investors are still focusing on a potential deal with SodaStream. This would help position PepsiCo in the home-beverage market and be an answer to the Coca-Cola and Green Mountain deal. When asked about potentially answering Coca-Cola's move into home beverages, PepsiCo CEO Indra Nooyi said, "Green Mountain is one option. Interestingly, there are multiple, multiple, multiple technologies out there." Is SodaStream one?

Even if it isn't, PepsiCo is a great investment
PepsiCo continues to be a best-in-breed consumer-goods stock. Billionaire and activist investor Nelson Peltz is still calling for the breakup of the beverage and snacks segments of PepsiCo. However, PepsiCo has reiterated that it plans on keeping the business intact.

It remains to be seen how the Peltz situation will shake out. But it's not only the snacks business that is appealing for investors; it's also emerging markets. Investors also be encouraged by the fact that PepsiCo can grow the profitability in its North American beverage business by rationalizing its manufacturing and distribution processes, which comes as the company has significant extra capacity. Ultimately, the rightsizing of capacity should help boost margins.

PepsiCo still generates nearly half of its revenue from outside the U.S. and is investing in emerging markets. Over the last five years, PepsiCo has managed to triple its revenue from emerging markets. PepsiCo saw double-digit sales gains in Latin America and Asia last quarter. The ultimate goal is to increase emerging market revenue to account for more than two-thirds of revenue.

 What to expect in 2014 and beyond
While PepsiCo is the No. 2 player in beverages globally, behind Coca-Cola, it is the global leader in salty snacks. Its key brands include Doritos, Cheetos, and Lay's. Its growing snacks business is helping to offset its sluggish beverages business. The plan is to shift its business mix to rely more on snacks. And going forward, the company expects two-thirds of its growth to come from snacks.

The other positive for PepsiCo is that it's growing its presence in nutrition businesses. This includes its nutrition brands Tropicana, Gatorade, and Quaker. This is a big positive as consumers shift toward good-for-you and health and wellness products.

Stacking up the shares
PepsiCo trades at 16.5 times next year's earnings estimates. Shares are up only 6% over the last year compared to the S&P 500 index's 22%. Meanwhile, Coca-Cola trades at 17 times next year's earnings. Investors remain attracted to shares of both Coca-Cola and PepsiCo for their dividends, yielding 2.9% and 2.8%, respectively. However, analysts expect PepsiCo to grow earnings a bit faster than Coca-Cola. Wall Street expects PepsiCo to grow earnings at an annualized 7.6% over the next five years; meanwhile, Coca-Cola is expected to grow at an annualized 6.4%.

Bottom line
While Coca-Cola is the leader in the carbonated-beverage market, PepsiCo is a formidable competitor and compelling investment. Investors can get exposure to both the beverages and snacks markets by investing in PepsiCo. I look for PepsiCo to continue its shift toward snack foods and expansion into emerging markets, which should provide for multi-year market-beating returns.

Dollar Stores Are Still A Great Investment

The traffic at dollar stores are still outpacing traffic at other retailers. From 2010 to 2012, total shopper trips grew 15% at the dollar stores, more than any other retail segment. And for the 52-weeks ended 3Q 2013, dollar store shopper trips were 4.5%, whereas all other segments saw a decline.

This comes as more and more Americans are making Dollar General (DG) and its peers the go-to-spot for necessities, such as food products and toiletries. I look for this trend to continue and still like Dollar General as a long-term pick.

Margins should continue expanding as Dollar General continues its expansion into private label products. The comp store growth has been more than robust at Dollar General. This has come despite a weak macro environment. A lot of this credit goes to the dollar store’s strategic store locations, and continued remodeling and relocation plans.

Benefiting from CVS

It’s also worth noting that Dollar General could be one of the biggest benefactors of the fact that CVS is planning to stop selling tobacco products. Dollar General should manage to capture the largest portion of CVS' $2 billion tobacco sales that it’ll forfeit. CVS and Dollar General have a large geographical overlap, with about 50% of CVS' stores being located in the Southeast and Midwest. These same two regions account for 75% of Dollar General's store count. That’s still a large opportunity for Dollar General to gain tobacco sales from CVS.

Dollar General has been quite aggressive in buying back stock. Dollar General bought $200 million in stock during 4Q, and already in 1Q bought $200 million. For the full year 2014, the retailer plans to buy up $1.1 billion in shares.

Bottom line

And over the last five years, Dollar General’s shares have traded in a range of 15x to 22x. The industry average is closer to 21x. Assuming fiscal 2015 earnings come in at roughly $3.65 a share, I think Dollar General can get its earnings multiple back to 20x. That’s a $74 price target, or 25% upside in less than a year’s time. The move toward dollar stores has been pronounced. I’d expect them to remain a key part of many people’s lives even after we see a rebound in employment.