PepsiCo Inc.

BANK OF AMERICA CORP., $14.17, New York symbol BAC, rose over 50% this week despite the fact that it needs to raise $33.9 billion in additional capital to satisfy government regulators. That’s equal to 37% of the bank’s $90.7-billion market cap. The Federal Reserve has evaluated the 19 largest U.S. banks to see how well they would cope if unemployment continues to rise and home prices keep falling. Such an environment would surely produce higher loan losses, and the aim of this “stress test” is to identify the banks that would have the most difficulty absorbing these. Bank of America failed this test, so it will have to strengthen its balance sheet. There are a number of ways it could do this, including converting its preferred shares to common shares, although this would significantly dilute the holdings of its existing shareholders. As well, the U.S. government holds $45 billion worth of Bank of America’s preferred shares, so converting them to common shares would give the government more control over the bank....

PEPSICO INC., $48.52, New York symbol PEP, makes soft-drink syrup, which its sells to its authorized bottlers. The bottlers then make the finished product and distribute it to retailers. This week, PepsiCo announced that it plans to buy its two main bottlers: Pepsi Bottling Group Inc. (New York symbol PBG) and PepsiAmericas, Inc. (New York symbol PAS). The takeover will cost PepsiCo roughly $6 billion in cash and shares, but it would let the company consolidate plants and administrative functions. PepsiCo’s management feels this would save $200 million a year, and increase annual earnings by $0.15 a share. Both bottlers’ shareholders must agree to the takeover. However, both stocks are trading above the value of PepsiCo’s offer. That suggests shareholders expect a higher bid, but the takeover will probably succeed. That’s because PepsiCo already owns 33% of Pepsi Bottling Group and 43% of PepsiAmericas, and its dominant position limits their appeal to other potential bidders....

PEPSICO INC. $52 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $83.2 billion; Price-to-sales ratio: 1.9; WSSF Rating: Above Average) is one of the world’s largest food companies. PepsiCo’s main products include soft drinks (Pepsi-Cola), snack foods (Frito-Lay), sport drinks (Gatorade), fruit juices (Tropicana) and cereals (Quaker Oats). PepsiCo owns 18 brands that each generate annual sales of over $1 billion. PepsiCo continues to do a good job of increasing its sales and earnings in a highly competitive industry. Moreover, it’s cutting its costs with a new restructuring plan, that includes closing plants and laying off 2% of its employees. The plan should save PepsiCo a total of $1.2 billion over the next three years, including between $350 million and $400 million this year. PepsiCo may use the cash that these savings free up to expand advertising this year, which should lift the company’s sales. In 2008, PepsiCo’s sales rose 9.6%, to $43.3 billion from $39.5 billion in 2007. Earnings rose 5.4%, to $5.9 billion from $5.4 billion. PepsiCo is an aggressive buyer of its own shares, so earnings per share rose 9.2%, to $3.68 from $3.37 on fewer shares outstanding. These figures exclude unusual items, mainly severance payments....

Starbucks Corporation, $9.31, symbol SBUX on Nasdaq (Shares outstanding: 734.6 million; Market cap: $6.8 billion), is a leading retailer and roaster of specialty coffee. Starbucks has 7,138 company-operated stores and 4,399 licensed stores in the U.S. In 42 international markets, it has 5,338 stores, which include 2,048 company-operated stores and 3,290 joint-venture and licensed stores. Starbucks’ total store count is currently 16,875, including 962 stores in Canada. Starbucks offers high-quality coffee and beverages in a variety of flavours, as well as pastries, salads and sandwiches. It also sells coffee-related merchandise (coffee mugs, coffee machines, etc.), plus books, DVDs and CDs. The company has revamped its menu to include oatmeal and fruit smoothies. In addition to its retail operations, Starbucks’ consumer-products group produces bottled water, coffee drinks, espresso drinks and ice creams through joint ventures with companies such as PepsiCo and Unilever In the three months ended December 28, 2008, Starbucks’ revenues fell 5.5%, to $2.62 billion from $2.77 billion a year earlier. Excluding one-time items, earnings fell 45.7%, to $113.1 million, or $0.15 a share, from $208.1 million, or $0.28 a share....

SCOTIA U.S GROWTH FUND $6.49 (CWA Rating: Conservative) (Scotia Securities, 40 King Street West, 6th Floor, Toronto, Ontario M5H 1H1. 1-800-268-9269; Website: www.scotiabank.com. No load — deal directly with the company.) looks at a company’s fundamentals such as earnings, dividend yield, book value, cash flow and low debt, as well as its management, to find undervalued stocks. The $36.0 million Scotia U.S. Growth Fund’s top holdings include Wells Fargo (diversified financial services), Oracle Corporation (software), Snap-on Inc. (professional tools), JP Morgan Chase (financial services), ExxonMobil Corporation, Microsoft, Lockheed Martin (space & aeronautics), PepsiCo, Conoco- Phillips and Eli Lilly & Co. (pharmaceuticals). The fund’s one-year loss in Canadian dollars is 21.3%, compared to a loss of 18.2% for the S&P 500 in Canadian funds over the same period. The fund’s MER is 2.56%....

We still advise keeping around 25% of your portfolio in U.S. stocks or mutual funds that hold U.S. stocks. Our view is that if you stay out of the U.S. market, you miss out on major multi-national investment opportunities that just aren’t available anywhere else. As well, by spreading your investments out between the U.S. and Canada, you can get all the foreign exposure you need. The U.S. dollar and the U.S. stock market could perform better than many Canadian investors now expect, at least for the next six months or so. That will add to your portfolio returns....

PEPSICO INC. $54 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $86.4 billion; WSSF Rating: Above average) aims to improve its long-term profitability with a new restructuring plan that should cut its expenses by $1.2 billion over the next three years. That will put PepsiCo in a better position to handle rising costs for grains and fuel. The company gets 40% of its revenue from overseas, so these savings will also help it cope with the rising U.S. dollar. Meanwhile, PepsiCo earnings in the third quarter of 2008 fell to $0.99 a share (total $1.6 billion) from $1.06 a share ($1.7 billion) a year earlier. If you exclude losses on hedging, PepsiCo would have earned $1.06 a share in the latest quarter. Sales grew 9.8%, to $11.2 billion from $10.2 billion, thanks partly to rising product prices. Total snack volume rose 2%, while beverages grew 3%. PepsiCo is a buy.

IVY FOREIGN EQUITY FUND $26.81 (CWA Rating: Conservative) outperformed the Morgan Stanley benchmark international index over the last 10 years. The fund gained 5.0%, and that was better than the Morgan Stanley benchmark’s gain of 1.7%. Ivy Foreign Equity Fund lost 2.2% over the last year. The fund invests in companies based outside of Canada, but cuts risk by avoiding direct investment in emerging markets. Ivy Foreign Equity is one of our top foreign fund recommendations. Still, we think non-U.S. international funds should make up at most 10% of the holdings of a conservative investor. The fund’s top holdings are PepsiCo (U.S. food & beverage), Reckitt Benckiser plc (UK household & healthcare products), McDonald’s Corp., Synthes Inc. (Swiss health care equipment), Walgreen Co. (U.S. pharmacies), Diageo plc (UK alcoholic beverages), Becton Dickinson (U.S. medical technology), Nestle SA, Henry Schein Inc., (U.S. healthcare) and Danaher Corp. (U.S. tools & controls)....

At one time, mutual funds within a particular ‘fund family’ often shared some key investment characteristic, such as a conservative or aggressive investment approach, or a stress on value as opposed to growth. However, due to corporate mergers and takeovers in the mutual-funds industry, and more aggressive marketing, a fund’s membership in a fund family now has little bearing on its investment approach or appeal as an investment. Below, for instance, we analyse five funds from the Ivy Group. (Note that Ivy is now part of Mackenzie Financial, which in turn is part of IGM Financial. The contact information listed for Ivy Growth and Income also applies to the other four.)...

SYSCO CORP. $32 (New York symbol SYY) plans to buy back 20 million of its shares, or about 3% of the total outstanding. It will also repurchase the remaining 3 million shares remaining under its previous authorization. Share buybacks boost per share earnings and increase the proportionate ownership of the remaining stockholders. However, rising gasoline and other costs have hurt traffic at the restaurants Sysco supplies. Hold. PEPSICO INC. $70 (New York symbol PEP) aims to triple its operations in India over the next three years. That includes expanding manufacturing capacity and its marketing efforts. Growing demand for soft drinks and snack foods in fast-growing countries like India continues to help PepsiCo offset slower growth in the U.S. Buy. HONDA MOTOR CO. LTD. ADRs $31 (New York symbol HMC) plans to launch a new gasoline-and-electric hybrid compact car in 2009. That will help Honda compete with the top-selling Toyota Prius.