MCD, PEP Stocks In Focus: UBS Reportedly Believes Defensive Dividend Names Could Be Ready For A Comeback

• Analyst Sean Burns noted low-risk stocks now offer a 4.4% market-implied yield versus 1.4% for high-risk stocks 
• PepsiCo, one of the highest-yielding stocks on UBS' list, is set to report Q2 earnings on July 9.
• UBS said McDonald's value offerings and product innovation support future market share gains. 

PepsiCo Inc. (NASDAQ: PEP) and McDonald's Corp. (NYSE: MCD) shares were in focus after UBS reportedly highlighted the companies as attractive defensive dividend plays, arguing that investors seeking opportunities outside the technology-driven rally should consider undervalued, lower-risk stocks. 

Why UBS Sees Value In Low-Risk Stocks

The first half of the year delivered strong gains for the broader market, but much of that advance was fueled by a handful of megacap technology companies.

According to a CNBC report, UBS said this narrow leadership has reduced the tendency for stocks to move together, allowing individual company fundamentals to play a larger role in performance. As a result, many defensive businesses now trade at valuation levels that compare favorably with higher-risk stocks.

UBS analyst Sean Burns said low-risk companies currently offer a market-implied yield of about 4.4%, compared with roughly 1.4% for higher-risk stocks. 

Similar valuation gaps in the past have often been followed by improved returns from low-volatility shares, said the report. 

PepsiCo Offers Income Appeal And Potential Upside 

PepsiCo, which offers one of the highest dividend yields among the group, is scheduled to release its fiscal second-quarter (Q2) earnings on July 9. The company exceeded analyst expectations in the first quarter, while its North American food business returned to volume growth after reducing prices on several popular snack brands. 

According to Koyfin data, the average analyst price target of $166.82 implies an 18% upside from the stock’s last closing price. Out of 24 analysts, 23 rate the stock either as a ‘Buy’ or ‘Hold’. 

For Q2, analysts see revenue of $23.98 billion with earnings of $2.21 per share, according to Fiscal AI data. 

PepsiCo stock edged 0.4% higher overnight, heading into Thursday. On Stocktwits, retail sentiment around the stock remained in ‘bullish’ territory. 

McDonald's Positioned For Continued Growth 

McDonald's also delivered first-quarter earnings and revenue ahead of expectations. 

UBS has previously said the restaurant chain is positioned to capture additional market share through its focus on value offerings, menu development and marketing efforts across both domestic and international markets, according to the report.  

According to Koyfin data, the average analyst price target of $330.47 implies a near 23% upside from the stock’s last closing price. Out of 35 analysts, 34 rate the stock either as a ‘Buy’ or ‘Hold’. 

McDonald's stock inched 0.03% higher overnight, ahead of Thursday. Retail sentiment around the stock turned to ‘neutral’ from ‘bullish’ territory the previous day. 

So far this year, PEP stock has slipped 1%, while MCD stock has declined by 11%.

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