Grading 3 Fast Food Stocks Now That Weight Loss Drugs Have Been Priced in
With the market now reflecting the latest developments in weight loss, it's time to chart some leading fast food stocks.
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For most of this year, I’ve avoided stocks that are related to fast food and casual dining. The reason was a new development in the sector: the surprising effectiveness of a new class of weight loss drugs, and their potential effect on dining habits.
The price of a stock or sector takes time to adjust to new information. If you give new developments enough time, eventually they'll be priced into the markets.
We may have reached that point with fast food and casual dining stocks. It’s now widely accepted that a new class of weight loss drugs are part of our medical and cultural landscape. This topic has been widely reported and discussed, and even lampooned on shows like "South Park."
GLP-1 agonists are here to stay. The market knows and understands. This information is now reflected in fast food and casual dining share prices. Now we can venture into this sector again.
Let’s go to the charts to see which fast food names are mouth-watering, and which ones are less than appetizing.
1. McDonald's (MCD)
One month ago, McDonald’s MCD came up short of earnings and revenue estimates. Globally, same store sales dropped by 1%.
Despite this, McDonald’s has been hotter than just-cooked french fry. Since the July 24, 2024 open, the stock has gained 17.4%.
My only beef with McDonald’s is the huge resistance level between $298 and $302 (black horizontal lines). The stock failed to breach this level on at least three occasions over the past year (black arrows).
If McDonald’s can break through that formidable barrier, the stock will reach an all-time high.
Why are shares of McDonald’s cooking? The company’s renewed emphasis on value, most notably its $5 Meal Deal, has consumers coming back for more.
GRADE: B+
2. El Pollo Loco Holdings (LOCO)
If McDonald’s is hot, then El Pollo Loco LOCO is on fire. Since reaching an intraday low of $10.68 on August 6, 2024, the California-based chicken chain has gained nearly 30%.
Unlike McDonald’s, El Pollo Loco beat analysts’ earnings and revenue estimates. Last week, the stock reached multi-year highs — but it’s still well below the all-time closing high of $41.20, set in 2014.
Why is El Pollo Loco so hot? Texas-based Biglari Holdings BH recently scooped up $4.5 million worth of the company’s shares.
That may not sound like much, but El Pollo Loco’s market capitalization is only $415 million. Small-cap stocks can make wild moves, so investors should approach this name with caution.
GRADE: A-
3. Wendy's (WEN)
Like McDonald’s, Ohio-based Wendy’s WEN is offering a discount deal, called the $5 Biggie Bag. Like McDonald’s, Wendy’s missed earnings and revenue when it reported in early August.
That’s where the comparisons end. In early August, Wendy’s guided estimates downward for the full year. The chart reflects this disappointing news.
Wendy’s has been trending lower for 18 months. The stock’s bearish trendline (black), 50-day moving average (blue) and 200-day moving average (red) are all trending lower.
Unfortunately, underperformance is nothing new to Wendy’s. Over the past five years, in the midst of a bull market, the stock has lost 23% of its value.
GRADE: C-
At the time of publication, AUTHOR was long LOCO and MCD.
