Soft drink stocks have come under selling pressure during the pandemic amid declining sales at restaurants, convenience stores, and gas stations. However, growing at-home consumption of soda, coffee, and snacks has helped pep up revenues. Furthermore, market research from Statista shows U.S. soft drinks sales growing 6.5% annually between 2020 and 2025.

Key Takeaways

  • Growing at-home sales have helped offset weaker away-from-home revenue.
  • Shares of The Coca-Cola Company (KO) have formed a pennant pattern after breaking out from a trading range, indicating upside continuation.
  • Buyers have successfully defended a zone of support between $135 and $138 in PepsiCo, Inc. (PEP) stock.

The group also stands to benefit from ongoing digital transformation as customers increase their thirst for online shopping options and contactless delivery due to COVID-19. Below, we take a closer look at the two largest publicly listed soft drink companies before turning to the charts to identify possible trading opportunities.

The Coca-Cola Company (KO)

With a market capitalization of nearly $220 billion, The Coca-Cola Company manufactures and markets nonalcoholic beverages, including water, juices, coffee, and energy drinks. Throughout the pandemic, the maker of Coca-Cola has invested in digital content such as images, videos, and product descriptions to ensure that its brands look as visually appealing online as they do in traditional promotions. The 134-year-old company also continues to work with restaurant customers to ensure that its beverages feature prominently on digital menus. As of Sept. 14, 2020, Coca-Cola stock offers a 3.28% dividend yield and has gained 13% over the past three months, outperforming the soft drinks industry average over the same time by 3.58%.

Coke shares have more or less ground sideways since early April. After breaking above the top of this range-bound action and the 200-day simple moving average (SMA) in the past month, price has consolidated in a pennant, indicating upside continuation in the weeks ahead. Those who buy at current levels should set a stop-loss order beneath the September low at $48.83 and target a move to the 2020 high at $59.07.

A pennant is a continuation pattern that forms when there's a large movement in a security, known as the flagpole, followed by a consolidation period with converging trendlines.

Chart depicting the share price of The Coca-Cola Company (KO)
TradingView.com

PepsiCo, Inc. (PEP)

PepsiCo is the global snacks and beverage company behind iconic brands including Pepsi, Mountain Dew, Gatorade, Doritos, Lays, and Ruffles. The soft drink company has leveraged its relative strength in the snacks category during the health crisis by launching PantryShop.com and Snacks.com. These digital channels offer consumers bundles of Frito-Lay and other PepsiCo food products via home delivery. PepsiCo also continues to bolster its move into lifestyle beverages. In February, the soda giant announced it had agreed to buy the Rockstar energy drink brand for $3.85 billion. PepsiCo stock has added 7% since early June, with the gain sweetened by a 3.04% annual dividend yield as of Sept. 14, 2020.

Over the past week, Pepsi shares have retraced to a previous trading range that finds a zone of support between $135 and $138. Buyers successfully defended this area in Friday's session to close the price just below the 50-day SMA. Active traders who position for further gains should consider booking profits near the 52-week high at $147.20 but cut losses if the stock falls beneath recent lows at $133.88.

Zone of support refers to a price zone reached when a security's price has fallen to a predicted low, known as a support level. Traders typically use technical analysis to identify a zone of support.

Chart depicting the share price of PepsiCo, Inc. (PEP)
TradingView.com 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.