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Wednesday, May 27th, 2015


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Stock Spotlight: Food Fight!

You gotta eat. It’s a known fact. Americans spend more than $537 billion on average on food alone each year, according to the most recent Bureau of Labor Statistics data. So, with a whet appetite, let’s chow down on some food stocks, and see whether some those companies are gourmet meals or full-blown bellyaches.

McDonald’s(MCD)

Snapshot: The venerable fast food chain is back with a vengeance. With locations in 100 countries worldwide, "Mickey D’s" is as common of a household name as it gets.

Recent Price: $28.38

Pros:

  • A management upheaval looks like a blessing for McDonald’s as earnings have picked up nicely.
  • New salad menu and healthy Happy Meal offering has proved a winner with customers and investors alike.
  • The company earned $17.4 billion in revenues last year, making McDonald’s a true Hamburglar. Thanks to new locations in strip mall storefronts, McDonald’s finally increased its bottom line after years of stagnant earnings growth.

Cons:

  • Medical watchdogs are still irate over McDonald’s McTriple Bypass Operation offerings: fatty Big Macs, trans fat-laden fries, and Super Sized cholesterol raising menu items.
  • Trading at 20.8 times earnings, its shares are not exactly a value meal when it comes to investments.
  • Must deal with new competition from healthier choices, such as Panera Bread, Atlanta Bread Company, Baja Express and the like.  Will McDonald’s cave in under the pressure of all the alternatives?


Krispy Kreme Doughnuts (KKD)

Snapshot: Mmmm … dough-nuts! With a delicacy that would make Homer Simpson proud, Krispy Kreme boasts laid back musician Jimmy Buffett as a franchise owner.

Recent Price: $10.79

Pros:

  • Brand has become a household word, and the popularity of Krispy Kreme has surpassed the competition at Dunkin’ Donuts.
  • Sales took off like a bunch of glazed doughnuts on a silver platter – jumping 35% last year.
  • Company trying to branch out beyond doughnut "bread and butter – ; by selling premium coffees and the like.

Cons:

  • Low-carb diet frenzy has created a nightmare scenario for Krispy Kreme, as customers and investors alike have shunned the donut diet for low-fat alternatives.
  • While sales have skyrocketed, earnings have fallen off a cliff. And if there is one lesson we learned from the dot gone era it would be the importance of Business Rule #1: It’s about the profits. Rule 2: See rule #1.
  • Securities Exchange Commission probe into KKD’s accounting has put a Jenny Craig-like diet on the price of Krispy Kreme’s shares, down nearly 40% since the SEC launched its investigation.  Even with the price cut, shares are still a sky-high 64 times earnings.


Starbucks (SBUX)

Snapshot: A chicken in every pop and a cup of Joe on every block. With more than 8,500 locations worldwide, Starbucks is as ubiquitous as WalMart. Yet, the coffee company is expanding again!

Recent Price: $49.66

Pros:

  • Just announced expansion will bring the company up to 30,000 locations across the java map. Growth of 20%-plus seems endless, and Wall Street loves the prospects.
  • Loyal customers never seem to balk at paying the equivalent of four cups of coffee for just one cup of Starbucks brand.
  • Diversified income stream with books, CDs, as well as a strong return customer base—thanks to the well-marketed Starbucks gift card.

Cons:

  • How long can they get away with charging so much money for so little coffee?
  • Will the constant increase in commodities prices lately translate into pricing their customers out of the store? Probably not.
  • How many more stores can they open before Starbucks exceeds critical mass?

Price quotes are from October 26, 2004.

Michael Abramowitz is a freelance writer based in Florida. To avoid any conflict on interest, he does not presently own any of the above shares.

© 2008, Young Money Media, LLC. All rights reserved.

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