Four Junk-Food Plays for a Healthy Portfolio
Terrified consumers flock to low-cost brands.
At a time when consumer confidence remains weak, can fast food remain profitable?
At a time when things started to look sunny, US consumer confidence for the month of June fell, snapping a 2-month rally of gains. The Consumer Attitudes Index weighed in at 49.3 --a decline from the 54.8 it was at in May. Additionally, the Present Situation Index slid to 24.8 from 29.7.
These declines were caused by a weak job market -- note continued layoffs in the private sector -- a less favorable assessment of business conditions, and a weak real estate sector. In addition, higher interest rates are deterring homeowners from refinancing mortgage -- which means no extra cash to spend. Lastly, studies have indicated that US consumers, still anxious about the economy, are saving more and spending less.
As long as these trends of high unemployment, unfavorable lending rates, and the tendency to save continue, low-cost alternatives will remain healthy.
Here are a few lost-cost brands that have been shinning through as a result of the current economic conditions:
1. McDonald's (MCD), which witnessed a low of $50.86 in March to rally up to $57.49 on June 30, a gain of 13%.
2. Yum Brands (YUM), which has rebounded from a March low of $23.47 to close at $33.34 on June 30; a 42% jump.
3. CKE Restaurants (CKR), rebounding nicely from a March low of $5.78 to close at $8.48 on June 30, an increase of nearly 47%.
4. Coca-Cola (KO) up 27% after hitting a March low of $37.85 to close at $47.99 on June 30.
When considering these stocks, keep in mind that they come with risks. To help moderate these risks, a sound exit strategy is of utmost importance. According to the latest data from www.SmartStops.net, here are the price levels where the uptrend of these stocks would be over: MCD at $55.18; YUM at $31.49; CKR at $7.98; KO at $46.53. Be aware that these levels change daily.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter