Most investors would want food stocks to be part of their portfolios since it is one of the fast-growing industries. Probably, it is the sector that is most resilient to economic and market headwinds, which makes the stocks less risky. It is estimated that Americans spend about 10% of their disposable income on food.
In the fast-food sub-sector, restaurant chains McDonald’s (NYSE: MCD), Chipotle Mexican Grill (NYSE: CMG) and Yum! Brands (NYSE: YUM) are among the most preferred investment options currently. All the three firms saw their stocks reaching record highs this year.
Despite its high market cap compared to others, McDonald’s has been in the spotlight in recent weeks, especially after the burger giant’s stock retreated from a record high a few months ago. The 12-month average price target of about $222 represents a 15% upside from the last closing price, which justifies the consensus buy rating on the stock. Like its peers, the stock outperformed the larger market by a wide margin in the past twelve months.
With a market cap of around $30 billion and stock price that falls slightly below the $100-mark, Yum! Brands is a much more affordable option when it comes to investing in the food sector. Interestingly, the stock has followed a pattern that is similar to that of McDonald’s so far this year. Yum! dropped 16% since peaking in early September. Market-watchers are divided in their recommendations, and it is up to the investor to choose between hold and buy.
Chipotle Mexican Grill
While most of the other factors are pretty similar when compared to others, Chipotle Mexican Grill might not make it to the investment portfolio of many due to its high price – closed the last session around $740. This year, the stock grew by two-thirds before entering a downward spiral in mid-October, outperforming both the S&P 500 and the sector. The twelve-month price target is $835.
Though the growing appetite for healthier foods – with customers becoming more and more health-conscious – calls for a fundamental change, statistics show that most people find the conventional fast-food menus appealing in their current form. The legacy food chains face competition from new players whose tech-supported services offer more convenience to customers. So, in the long run, the current market leaders would need to tweak their business model and adapt to the changes in order to stay relevant in the industry.
Considering these factors, it is natural that an investor looking for affordability, strong fundamentals and reliability in terms of the company’s ability to weather future headwinds would prefer McDonald’s.