Best Stock to Buy Right Now: Constellation Brands vs. PepsiCo

Constellation Brands (NYSE: STZ) and PepsiCo (NASDAQ: PEP) were both considered stable blue chip stocks for conservative investors. Constellation was one of the world's largest producers of beers, wines, and spirits. PepsiCo was one of the top beverage makers and also owned resilient packaged food brands, including Frito-Lay and Quaker Foods.

However, over the past two years, Constellation's stock has plunged by over 40%, while PepsiCo's stock has dropped by 10%. During the same period, the S&P 500 rallied more than 40%. Let's see why these two consumer staples giants underperformed the market -- and if one is a better buy right now.

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Constellation faces formidable challenges

Constellation sells over 100 brands of alcoholic beverages. It generates most of its revenue from its beers, which include Modelo, Corona, and Pacifico. A smaller portion of its revenue comes from its wines and spirits, which include Kim Crawford and Casa Noble Tequila.

Over the past few years, Constellation's growth cooled off as it faced several formidable challenges. Younger consumers in America, where it generates most of its revenue, drank less beer than previous generations. Meanwhile, its Hispanic consumers -- who usually account for about half of its beer sales -- reined in their spending as the macro and political headwinds intensified under President Trump. The Trump Administration's higher tariffs on overseas aluminum further compressed the margins of its imported Mexican beers. It's trying to sell more hard seltzers and non-alcoholic beers to reach younger consumers again, but those newer drinks can't offset the ongoing shrinkage of its core beer brands.

As Constellation's beer business struggled, its sales of lower-end wines and spirits declined. It sold some of its cheaper wine and spirit brands to focus on its higher-end brands, but those divestments further reduced its revenues and exacerbated its slowdown.

For fiscal 2026 (which ends next February), Constellation expects its beer sales to decline 2%-4%, its wine and spirits sales to drop 17%-20% organically, and for its total organic sales to dip 4%-6%. Analysts expect its revenue and adjusted EPS to decline 11% and 4%, respectively.

For fiscal 2027, analysts expect its revenue to flatline as it faces the same challenges. However, they expect its adjusted EPS to rise 8% as it right-sizes its weaker businesses. At $140, Constellation's stock might seem cheap at ten times next year's earnings. It also pays a decent forward dividend yield of 2.9%. However, it probably won't attract a higher valuation until it stabilizes its beer business and right-sizes its smaller wine and spirits segments.

PepsiCo also needs to right-size its business

PepsiCo's organic sales also decelerated over the past two years. Its beverage business held steady, but its packaged food brands faced several major challenges. Quaker Foods issued a series of brand-tarnishing recalls, struggled with sluggish spending in China and Latin America, and ran out of room to shrink its packages and hike prices to counter inflation.

For 2025, PepsiCo expects a "low single-digit" increase in its organic sales, with its core comparable EPS remaining flat on a constant currency basis. It attributes that slowdown to higher tariffs, cautious consumer spending, and stiff competition from other packaged food brands.

That dim outlook attracted the attention of Elliot Management, a large activist fund that took a $4 billion stake in PepsiCo in September. Elliot wants PepsiCo to prune roughly 20% of its product portfolio to focus on its core brands, reduce prices to stay competitive, and streamline spending through plant closures and layoffs. It also wants PepsiCo to mimic Coca-Cola (NYSE: KO) and outsource its internal beverage production to independent bottlers.

By right-sizing its portfolio and adopting Coca-Cola's asset-light bottling model, PepsiCo can generate stronger top and bottom-line growth over the next few years. However, for 2025, analysts expect its revenue to rise only 2%, as its adjusted EPS remains flat.

For 2026, they expect its revenue and adjusted EPS to increase 4% and 5%, respectively, as some of those turnaround efforts pay off. At $150, PepsiCo's stock still appears attractive at 18 times forward earnings and offers a high forward dividend yield of 3.8%. But just like Constellation, PepsiCo's stock will stay in the penalty box until it addresses its most pressing issues.

The better buy: PepsiCo

I wouldn't rush to buy either of these troubled consumer staples stocks right now. But if I had to choose one over the other, I'd pick PepsiCo because it faces fewer long-term headwinds. PepsiCo needs to cut costs and trim some of its weaker brands, but it doesn't face an existential crisis like Constellation -- which desperately needs fresh ways to revive its ailing beer business.

Leo Sun has positions in Coca-Cola. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.