Thursday, May 22, 2008

DPS

Buy DPS (Dr. Pepper Snapple)

DPS's products are all staples with solid brand names that will continue to sell even in the face of a slowdown. Forced selling due to the stock's spin off from Cadburry has depressed the stock price in the near term leading to an opportunity to get long the stock. DPS sells at only a 13 PE while its peers (KO and PEP) sell at a 18 PE. This is a very wide disparity that should close soon enough. Although DPS does not have the international exposure of KO and PEP, the gap between valuations more than compensates for this.

I think that 25 dollars is a very reasonable price to get long the stock given the factors above.

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