These 2 Fast Food Stocks Look Delicious in a Recession Year
It's hard to say when or if we'll fall from an economic downturn to a full-blown recession. Treasury Secretary Janet Yellen says the economy is "strong," shooting down some of the recession fears that many market participants may have held onto in recent quarters. At this juncture, Yellen says a so-called "soft landing" is still a possibility. Despite Yellen's encouraging comments on the economy, she warned that an "economic catastrophe" could be in store if the U.S. debt ceiling is not raised. Over the coming weeks, we'll see what unfolds. Regardless, I don't think Yellen's calls will go unnoticed by the market.
Even if debt ceiling concerns weigh on the market rally's momentum, I don't think there's a need for investors to panic. Indeed, a lack of timely debt-ceiling increases could bring forth some risk to stock valuations, increasing the chances for value opportunities to appear Year to date, the stock market has had a very respectable relief-driven run. Whether or not it will continue to hold remains a mystery.
For now, careful preparation for potential bear-case scenarios may prove wise. The recent earnings results haven't all been awful. The U.S. economy may very well continue rolling along from here, perhaps avoiding any sort of steep recession. When it comes to recession preparation, there are many ways investors can prepare, including having some dry powder on the sidelines, though that's become a less popular strategy as inflation has remained high. But for those who already have a sufficient safety net set up, I believe fast food stocks may be worth a look as recession plays.
Fast food stocks tend to hold up the fort, even when economic conditions become less sanguine. Though no stock is immune from downside risks, I continue to view the fast food scene favorably as we head into difficult times. Even if there is a soft landing, they should still perform well. Thus, let's take a look at two of my favorite fast food stocks that recently reported encouraging quarterly results.
McDonald's: I'm lovin' the recent rally
McDonald's (NYSE:MCD) continues to be loved by customers and investors amid the more challenging macro backdrop. The stock recently spiked from around $263 per share to just shy of the $300 mark. The two-month-long rally has begun to slow, but I wouldn't look for shares to surrender too much of the recent gains as the company continues exploring new ways to drive its profitability.
According to McDonald's CEO Chris Kempczinski, McDonald's has really "refocused on operational excellence." As efficiency gains come flowing in, McDonald's may very well find itself in a "Goldilocks" type of scenario.
Foot traffic has been impressive, even as the company subtly hiked its prices to provide some relief from high inflation. As the company looks to become more efficient while updating some of its core menu items, I'd look for McDonald's stock to be in a great spot to outperform the broader S&P 500. At the end of the day, McDonald's is a company that I believe can act resilient when economic growth is poised to take a bit of a slide.
Further, McDonald's CEO seems to be doing so many things right at the helm of the golden arches. I believe the respectable performance of the stock (shares are up more than 12% year to date) is thanks in large part to his operational improvements.
As of this writing, shares of McDonald's trade for a price-earnings ratio of 31.87. That's not cheap for a fast food company, even one that can power through a turbulent period in the economy. The 2.05% forward dividend yield is also on the lower end. While I'd prefer waiting for a pullback, I'm not so sure we'll get one so soon after the company's latest quarterly top- and bottom-line beat.
Restaurant Brands International: The recent run may not be over just yet
Restaurant Brands International (NYSE:QSR) has seen its stock really take off, up 42% over the past year. Like McDonald's, Restaurant Brands just came off a nice earnings beat. Burger King and Popeye's Louisiana Kitchen played a key role in helping the company deliver a genuinely delicious quarter.
I think it's safe to say that the business recovery in Restaurant Brands is already underway. As the company continues to deliver for investors, I expect more analysts to hike their price targets on the name. For now, shares actually still look very attractive at a price-earnings ratio of 22.17. That's well below the likes of McDonald's and many of Restaurant Brands' peers.
Personally, with the stock's recent earnings growth, I don't think the steep discount warranted, especially given the huge beat the company pulled off for its latest quarterly report. With a 3.07% forward dividend yield that towers over the competition, I think Restaurant Brands is poised to continue impressing as we move into the latter half of 2023. There's a lot of momentum that I think is sustainable.
This article first appeared on GuruFocus.
