Coke or Pepsi—Which Does Cramer Prefer?

Much like the rivalry between the two colas, investors can't agree on the stock either. For Jim Cramer, which is it — Coke or Pepsi?

With the market in the middle of a sell-off, Cramer knows that you may want to rotate into defensive stocks such as these.

But which is better?

"Right here, right now, I prefer the one that's acting better. Yep, I like Pepsi better than Coke here," said the Mad Money host.

Looking at the latest earnings, Cramer says Coke isn't it.

"Coke reported a one-cent earnings beat back on the 12th, but it was a low-quality beat driven by a lot of one-time benefits like gains on hedges and lower ad spending in Europe, as well as two extra shipping days in the quarter versus last year. Even with that though, the company's global volumes were up just 3% for the quarter, which was slightly below what Wall Street was expecting," he said.

"Pepsi, on the other hand, blew away the expectations when it reported two days later, delivering a 3-cent beat off a $1.06 basis, and this was a high quality beat driven by 5% organic revenue growth. And management's outlook for 2013 was pretty darned bright. CEO Indra Nooyi pointed out that at the beginning of last year, she told us that PepsiCo needed to use 2012 to reinvest in itself. But now they've done that, the business is looking good, and the company's ready to compete and create value in 2013," Cramer added.

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Looking forward Cramer likes Pepsi's prospects a little better. Largely he thinks consumers are turning away from sugary drinks.

"Given this backdrop, what would you rather own? Coca-Cola, which is essentially 100% beverages? Or PepsiCo, which is only 40% beverages and 60% snacks?"

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In addition Cramer sees a slew of other catalysts which favor Pepsi.

- Restructuring: Pepsi has a major restructuring program underway that they started a year ago, he said.

- Spin-Off: Cramer also thinks that Pepsi may soon spin-off their bottling arm, possibly as early as the beginning of 2014. "Again, this is a catalyst that Pepsi has, and Coke doesn't," he said.

- New Products: Cramer likes many of the new products introduced by PepsiCo such as Quaker Real Medleys, packaged oatmeal that comes with real fruit and nuts, as well as Pepsi Next, a cola with 60% less sugar. In addition he thinks Gatorade Energy Chews and Doritos Locos Tacos are other potential hits.

- Asia Strategy: Cramer also prefers Pepsi presence in Asia. "Pepsi formed a joint venture in China last year with Tingyi, a local Chinese company, that made it the largest beverage player in the People's Republic," he said, "giving them major exposure to bottled water, tea, and juice in a very non-risky way. Although Coca-Cola's has also been investing heavily in its Chinese business, this Pepsi-Tingyi alliance is giving them serious trouble."

Daniel Acker | Bloomberg | Getty Images

Plus, Cramer said that Pepsi is cheaper.

"PepsiCo sells for 15.75 times forward earnings and Coke sells for 16.2 times forward earnings."

What's the bottom line?

"Since the beginning of the year, Pepsi has rallied 11%, while Coke is up just 4%. These two stocks are always in a horse race. Sometimes the wrong one is in the lead. But not this time, which is why I think PEP is a good place to go as we get weaker," said Cramer.

"Now let me be clear about what I mean," he added. "PepsiCo is the beverage stock to buy on the way down right into this nasty sell off."

"PepsiCo is less than a buck off its high. If I wanted to buy 100 shares, I would start with 25 here, and buy 25 more every point and a half down. If you buy all at once, you are not hearing me. I am simply saying that Pepsi deserves to trade at a premium to Coca Cola, not that it's time to load up the truck with PepsiCo. And let's leave it at that."

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