The Fed’s latest hawkish comments have food for the bear market. With higher rates expected for “some time,” many fear there’s no softening the blow of the coming recession. Indeed, the latest employment data does not give the Fed much room to set the stage for a soft landing. With new firms announcing massive layoffs, only time will tell if the Fed has the wiggle room to backtrack without giving any ground back to inflation.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
As rates continue climbing, bonds may continue to be a preferred parking place for a broad range of investors. Still, long-term investors stand to get greater total returns from certain defensive stocks that can offer decent gains alongside robust dividends. In this piece, we’ll compare two fast-food stocks — MCD and YUM — that may not be too expensive, given their knack for performing in harsh economic climates.
McDonald’s (NYSE:MCD)
McDonald’s was a steady inflation fighter through 2022. With a fully-loaded value menu and continuously improving technological capabilities (loyalty app, self-order kiosks) that can take more friction out of the ordering process while increasing the number of orders, the company is likely to flex its muscles again in 2023.
Undoubtedly, McDonald’s managers have done a magnificent job of keeping the fast-food king at the top. Menu innovation and marketing that’s hit the spot with young consumers could continue to tilt the tables in favor of the golden arches.
Recently, McDonald’s announced a rollout of the double McPlant across the U.K. and Ireland. Undoubtedly, the McPlant has been slow to take off, given its limited success in specific markets. As with most new offerings, McDonald’s wants to ensure a product will stick before stomaching additional risks involved with a wide-scale rollout.
Though alternative meat firm Beyond Meat (NASDAQ:BYND) suffered a disastrous 2022, I don’t think we can dismiss its plant-based meat substitute as a fad like most other trends that heated up in 2020 and 2021. As Beyond Meat, McDonald’s, and other players in the alternative-meat space tinker with their plant-based offerings, I expect the McPlant will continue to evolve and may be a source of growth, moving forward.
For now, McDonald’s could enjoy tailwinds as the rest of the market is hit with headwinds. Fast food is cheap and more accessible than ever, thanks to McDonald’s investments in delivery, drive-thru, and mobile.
Finally, McDonald’s first (predominantly) automated restaurant in Texas is worth keeping tabs on. The concept could be the start of a rollout that could propel long-term margin growth. Of course, McDonald’s wants to make sure everything runs smoothly at its first location before committing to any sort of rollout.
In any case, the future looks incredibly bright for McDonald’s, and its rich 33x trailing earnings multiple seems more than warranted.
What is the Price Target for MCD Stock?
Wall Street loves what McDonald’s is serving up. The average MCD stock price target of $287.27 implies 6.6% upside potential.
Yum! Brands (NYSE:YUM)
Yum! Brands is the firm behind the trio of terrific chains Taco Bell, Kentucky Fried Chicken, and Pizza Hut. Like McDonald’s, Yum! has done a marvelous job innovating its menu while providing a great value proposition for its consumers.
As tides continue to turn in favor of low-cost restaurants, I expect YUM stock could be in a spot to break out of its multi-year funk. At writing, shares trade at 29.7 times trailing earnings, making it a lower-cost play than McDonald’s.
Though Yum’s innovations may not be at the same level (McDonald’s seems more like a tech stock these days!), the firm is looking to invest heavily in its international expansion. As inflation and labor woes retreat, look for Yum! to have a solid year. The only question is if management can make the most of the industry tailwinds that could intensify.
With a 1.0 beta, YUM stock is expected to be as volatile as the market. I’d look for the multiple to fall as YUM looks to power higher in a bear market.
What is the Price Target for YUM Stock?
Analysts view Yum! as a yummy stock, with a Moderate Buy consensus rating based on eight Buys and five Holds. The average YUM stock price target of $141.17 implies 8.35% upside potential from here.
The Takeaway
The fast-food space is full of sleep-easy names with modest dividend yields (YUM yields 1.8% while MCD yields 2.3%). Between the two names, analysts expect more from YUM stock. Personally, I’m sticking with McDonald’s stock.
