Coke (NYSE: KO) may be winning stock taste test with Pepsi (NASDAQ: PEP)

You might expect the stocks of Coca-Cola (NYSE: KO) and PepsiCo (NASDAQ: PEP) to move in tandem. After all, they both have made their names over the years by selling soda.

But that’s not the case. Coke shares have creamed Pepsi over the past year, rising 14%, compared to a 26% drop for Pepsi. And in the past, there have been periods when Pepsi outperformed Coke.

In actuality, their product mixes are quite different. Coke sells only beverages, including its namesake soda, Sprite and Jack Daniel’s whiskey. Meanwhile, about 60% of revenue for Pepsi comes from snacks, such as Frito-Lay, Doritos and Cheetos. 

But health-conscious consumers are shying away from that often unhealthy fare. Pepsi’s organic North American food revenue dropped 2% in the first quarter from a year earlier. Even on the beverage side, Pepsi’s organic North American sales climbed only 1%, compared to 3% for Coke.

Coke’s overall organic revenue increased 6% in the first quarter, compared to just 1% for Pepsi. Coke has reaped the rewards of its focus on zero-sugar recipes, flavor and packaging innovations, says Morningstar analyst Dan Su.

The international equation

Coke also benefits from its more heavy reliance on international sales than Pepsi. Foreign sales account for about 65% of Coke’s revenue, compared to 40% for Pepsi. That’s significant because the companies are racking up their strongest growth overseas. 

For example, Coke’s organic revenue soared 13% in Latin America during the first quarter.  And Pepsi’s organic revenue in Europe, Middle East and Africa (EMEA) ascended 8% in the quarter.

Coke and Pepsi have plenty of room to expand in emerging markets. The per capita annual consumption of Coke products totals $144 in the Asia-Pacific region and $190 in Latin America. That compares to $1,100 in North America, Su notes.

Coke doesn’t expect tariffs to hurt it much. Last month, it reiterated its forecast for organic sales to grow 5%-6% this year. That compares to Pepsi’s forecast of a low-single-digit increase. Recovery is a ways off for Pepsi’s Frito-Lay brand, Su says. 

But he does see a bright long-term outlook for Pepsi’s food division. “Shares remain undervalued as the market prices in pessimistic assumptions for US food over the longer term,” he says.

Still, Coke appears to be “the real thing” now, as the famous TV commercial said.

The author owns shares of both Coke and Pepsi.