Investing requires tradeoffs. You can usually buy this stock or that one, but not both (unless you're Warren Buffett). If you have identified an industry you want to invest in, your returns will generally improve if you pick the best one in that industry.

Coke (KO) and Pepsi (PEP) compete head-to-head for your beverage dollars. But which, if either, is a better buy right now?

While not identical, these two companies are ideal for comparison using a seasonal forecast approach. Soft drink sales are very seasonal; we're all having picnics and going to ball games in the spring and summer months.

All things being equal, Coke gathers about 53% of its annual revenue during the spring and summer quarters. Pepsi, which has more food in its pantry, has a different pattern, with its best quarter of the year being the last. I guess people are eating chips and dip while drinking beer during football games and New Year's Eve parties. Nearly 30% of Pepsi's seasonally adjusted sales occur in the quarter ending on Dec. 31, 2007.

So which one is currently a better investment? Right now, I'd order Pepsi before Coke. For starters, Pepsi's revenues are more predictable than Coke's. Plain statistics explain 97% of Pepsi's behavior vs. only 87% of Coke's. I am more confident that Pepsi will report what I predict.

My analysis forecasts that Pepsi will report revenues of $10.8 billion with net of $1.75 billion and EPS of $1.12. The company has been growing revenue at 10% and earnings at 10.5% over the last six years. It trades at a P/E of 18.

I expect Coke to report $8.0 billion in revenue, $1.7 billion net and EPS of 79 cents. The company has been growing revenues at 9.1% and net income at 7.2% over the last six years. Coke trades for a P/E of 20.

Pepsi's performance has been more consistent, and the company has grown faster than Coke for the last six years. Unless something changes at one company of the other, that relative trend is likely to continue for the next two to three years. Therefore, Pepsi should trade for a premium over Coke because Pepsi has been outperforming Coke. Buy Pepsi with a 24-month target of $110, a return of 60%. My target for Coke is $66, a more modest 25% gain.

Of course, if you like Dr. Pepper (DPS) then that's an entirely different argument (and article)

Disclosure: I've owned stock in Pepsi almost since before I was born. Grandpa Hall bought it for all five of his grandchildren when the only thing it made was Pepsi Cola. I wish I still had the 100 shares he gave me when I was 13, more than two decades ago. According to Yahoo.com, Pepsi has split 54:1 since then, rising from about 57 cents to $70. Coke has split 48:1 over the same period, rising from 68 cents to $53. Imagine how much bigger Berkshire Hathaway (BRK.A) would be if Warren Buffett liked Cherry Pepsi instead of Cherry Coke.