2 Stocks to Avoid in the Fast Food Industry

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At first glance, the fast food industry had a good week. McDonald’s Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM), which is the company behind Taco Bell, KFC and Pizza Hut, both rallied after reporting first-quarter results.

drive thruHowever, if you dig into the details of these two reports, you can see that there are still a lot of problems in the fast food industry.

McDonald’s announced that net income fell 32.3% year over year to $811.5 million or 84 cents per share. Adjusted earnings, which exclude strategic charges and foreign currency headwinds, were $1.01 per share. Analysts were looking for $1.06 earnings per share. So, McDonald’s posted a 5% earnings miss.

Over the same period, total revenues fell 11% to $5.96 billion, which was in line with the consensus estimate. Breaking it down, global comparable sales fell 2.4% while U.S. comparable sales fell 2.6%. McDonald’s is struggling with declining guest traffic in all of its major segments.

Interestingly, MCD shares still rose following the report. McDonald’s management alluded to a turnaround plan that will be revealed in early May. However, with analysts still projecting an 11% drop in sales and a 10% earnings decline for the second quarter, I wouldn’t hold my breath on MCD. I consider MCD a D-rated “sell.”

And while the results with Yum Brands were a little better —  YUM posted an 11% earnings surprise and projected 10% earnings growth in 2015 — I wouldn’t necessarily buy into the hype. YUM shares broke through a new high on Wednesday, but that doesn’t change the fact that YUM stock barely scrapes by with a C-rating.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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