There’s nothing wrong with Coca-Cola (NYSE:KO) as a business. In fact, he has a rich past and probably a bright future. But Wall Street is well aware of the appeal of investing in Coca-Cola, leaving it today (and most of the time) as what appears to be a fully valued stock.

He only does one thing: makes drinks (even though he does it very well). So if you’re looking at Coca-Cola, you might want to consider a direct competitor. PepsiCo (NASDAQ:PEP) or change gears and watch Procter & Gamble (NYSE:PG). Here’s why.

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Coca-Cola is a one-trick pony

Coca-Cola’s greatest strength is that it is dominant beverage manufacturer. It benefits from the distribution prowess, marketing skills and innovation capabilities that come with its size.

But this strength is also a weakness, since Coca-Cola’s activity is anything but diversified. Sure, you could argue that it makes different types of drinks, but drinks are still the name of the game.

Ultimately, beverages are just a tiny niche of the larger market. consumer staples sector. That’s why you might want to take a look at PepsiCo, one of Coca-Cola’s main competitors in the beverage niche.

PepsiCo adds a dominant position in savory snacks (Frito-Lay) and a large packaged foods business (Quaker Oats). This diversification can help smooth financial performance over time. That may limit gains to some extent, but if there’s a problem in the beverage business, it won’t derail PepsiCo like it might Coca-Cola.

Meanwhile, Coca-Cola’s price-to-earnings (P/E) ratio is roughly equal to its five-year average. PepsiCo’s P/E is just over 5% below its five-year average as of this writing. And its 3.3% dividend yield is slightly higher than Coca-Cola’s 3.1%. So PepsiCo seems a little cheaper, offers a little higher return and has a much more diversified business. This should attract the most conservative investors.

Procter & Gamble plays a different game

Investors can take another direction: focus on the broader consumer staples sector. If you do this, dominant companies like Procter & Gamble may be considered.

P&G makes consumable goods that people use every day and buy regularly. It holds leading positions in products such as toothpaste, laundry detergent, toilet paper, paper towels, deodorant and diapers, to name a few. If you’re a fan of diversification, P&G offers it in a big way, noting that it tends to play at the high end of the product categories in which it competes.

Like Coca-Cola and PepsiCo, P&G is a massive company with distribution, marketing and innovation skills that would be difficult to replicate. And it has a globally diversified portfolio.

To be fair, if we compare the current P/E versus the five-year average P/E, it trades similarly to Coca-Cola from a valuation perspective. And the yield is only about 2.4%. So it may not be as attractive an alternative to PepsiCo in this regard.

However, Procter & Gamble’s diversification into multiple product categories should not be ignored. In fact, it might make a good deal with Coca-Cola if you don’t want to buy PepsiCo.

Buying a half position in Coca-Cola and a half position in P&G would actually lead to greater diversification than if you only bought PepsiCo, given that P&G’s products cover a broader group of consumer goods categories from base. And you wouldn’t diminish the quality in any way, given that P&G is one of the best-run consumer staples companies on the planet.

Coca-Cola is great, but think about your options

There’s nothing wrong with Coca-Cola, and long-term investors will likely do just fine if they buy it. But it’s not the only company to consider.

PepsiCo is another beverage giant to think about, and it’s adding snacks and packaged foods, not to mention a slightly more attractive valuation and higher yield.

Or you could shift gears and look to a more diversified consumer staples giant like P&G, which could also be a strong complement to Coca-Cola since there’s little business overlap.

Don’t just buy Coca-Cola without thinking about the other choices available to you today. Some alternatives could prove more attractive.

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Ruben Gregg Brewer holds positions at Procter & Gamble. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.

Should we forget Coca-Cola? Why these unstoppable stocks are better buys. was originally published by The Motley Fool