PEP has bounced - Great buying opportunity

PEP (Symbol for Pepsico Inc.) is fresh off a week long decline that started when they released their quarterly financial statements for the 4th quarter 2011. Although Pepsico Inc. beat its financial projections it predicted higher advertising costs going into the American market in the coming year and forecast layoffs in the coming year to help pay for that. Several people became very worried that this was a bearish signal by the company because in the past several years layoffs have been a sign of bad bad things happening in the financials. However I don't think this is the case here.

We can take a page from Proctor and Gamble in this regard who just announced layoffs, not because results are down but because it no longer needs all of the advertising employees it once did. (Click HERE to read about it) It seems that creating a big ad push like Pepsi is doing no longer means dozens of employes logging thousands of man hours. Rather it means a few dedicated individuals manning twitter, and Facebook backed with a few well timed and effective ad spots. I think what Pepsico is doing with the layoffs is in the same vein.

PEP took a huge dive last week when the numbers came out. (see chart below) I jumped in right away recognizing it as a buying opportunity. Again I am only starting with $1000 dollars so I don't have a ton of money to put into a $70 stock, so I bought some options instead. I bought January 2014 Call Options with a $75 strike price. With options you get rewarded or killed based upon momentum. The options I bought cost $1.53 per option so 2 contracts put me in $306. What I didn't expect was that PEP would continue its downward momentum and it cost me. PEP didn't lose much in the stock price but the option got killed because downward momentum continued for a few days. Today (Tuesday 2/21/12) my options contracts are worth $258 which is roughly a 16% loss on this trade thus far. But good news is that today it is headed up, and IMHO on its way back to levels seen before the 4th quarter announcement. This will turn into a big gainer, Pepsico is a great company performing very well, these layoffs are nothing to worry about in the long term health of the company.

I might be doubling down on PEP but I have to free up some cash, perhaps sell my F (ford) options to free up some cash. I'll update and let you know what I do.

UPDATE: My money is tied up in other options I like already. Still think F is a great long term play so I'm just going to let PEP ride. No money to double down at this point.

Disclaimer:
Just to be clear, nothing that I'm posting on this blog is in any way advice that should be followed by anyone else. All investment decisions should be made carefully by all individuals taking into account their own financial situation and appropriate levels of risk. Do not take anything I say for anything more than it is, opinion, speculation, and woefully undereducated guesses as to how I think a few stocks are going to perform.