The fast-food industry can be a fickle one and companies in this space are often hurt by food safety concerns and changing consumer preferences.
While small brands have the potential to deliver impressive growth, it’s the bigger, more established companies that make for the best bets in this industry.
Investors who are looking for fast-food stocks to buy should consider companies that have a strong foothold in the sector, but have proven their resilience by overcoming challenging market conditions through customer-facing innovations or holistic changes in the business.
Here’s a look at three stocks to buy within the fast-food industry that will keep your portfolio stuffed through winter and beyond:
Food Stocks to Buy: McDonald’s (MCD)
When evaluating the fast-food arena, McDonald’s Corporation (NYSE:MCD) stock cannot be overlooked. Arguably one of the most recognizable brands in the world, the Golden Arches is a great choice for long-term investors.
MCD has had its troubles in recent years as consumers looked for healthier options, but over the past year the company has focused on what it does best: fast, American comfort food. That strategy appears to be working.
McDonald’s has seen an uptick in new customers since introducing an “All-Day Breakfast” menu. The company has also tried to innovate in ways that will capture the attention of the elusive millennial generation, making its stores more technologically advanced by adding self-service kiosks and even tablets stationed at each table. These kinds of investments in automation are not only a way to draw in a younger crowd, but they will also help cut down on labor costs, something that is becoming especially important as minimum wage rises.
It’s not all roses for McDonalds, though. While the firm is seeing the number of new customers rise, the amount each person is spending has declined as the breakfast items cost less than traditional offerings. The firm reported lower-than-expected sales growth in the U.S. during the second quarter, and CEO Steve Easterbrook admitted that the company is struggling against a “challenging environment” in several of its key markets.
MCD is likely to continue to struggle in the coming quarters as it fights to maintain its place at the top of the fast-food chain. However, for long-term investors, its dividend yield of 3% makes waiting for the share price to improve much easier.
Food Stocks to Buy: Yum! Brands Inc. (YUM)
KFC and Taco Bell owner Yum! Brands, Inc. (NYSE:YUM) is a good growth play for investors looking to invest in the fast-food market. The company’s portfolio of restaurants have struggled in the US, but YUM has managed to make KFC one of the most popular fast-food choices in China.
In recent years, YUM has struggled to overcome poor macroeconomic conditions and increasing competition in Asia, but the company’s most recent earnings report showed that things are turning around for KFC, as same store sales rose 3% in the second quarter.
The firm is in the midst of spinning off its China arm, a move that is likely to make Yum China much more profitable. On Friday, the company announced plans to sell part of its Chinese operations to Alibaba Group Holding Ltd (NYSE:BABA) and Ant Financial Service Group, which is likely to generate further interest in the company once it is spun off in October.
The Yum China spinoff is a benefit to YUM investors because although the new company will be a separate entity, Yum China will pay 3% royalty rate to Yum! Brands.
At the moment, YUM restaurants are struggling in the U.S. Both Taco Bell and Pizza Hut have seen a massive decline in customer interest, so the firm will need to do a bit of revamping to turn things around. However, the influx of cash coming from the China spinoff should be enough to give YUM the capital it needs to overhaul its brands and revive customer interest.
Food Stocks to Buy: Starbucks (SBUX)
There are many reasons to invest in Starbucks Corporation (NASDAQ:SBUX) from the company’s impressive brand identity to its straightforward business model. However, the company’s impressive loyalty program and mobile platform are key reasons to include SBUX in your portfolio.
As of last quarter, the coffee giant’s loyalty program had grown by 18% from the previous year to 21.3 million active users. Starbucks’ mobile app was also gaining momentum, with 5% of the company’s transactions taking place through its mobile order and pay platform.
Customers deposit money into their SBUX account, which they can then use to make purchases in-store. According to S&P Global Market Intelligence, SBUX users have loaded $1.2 billion onto their accounts. That’s easily more money than some small banks hold for their customers.
The nature of fast food is changing quickly as more and more consumers opt to order and pay online and simply pick their food up in-store. Starbucks has proven that it has a finger on the pulse of what consumers are looking for, and the firm’s wildly successful mobile app is proof of that.
In addition to being a leader in technology, Starbucks has also managed to maintain its position as a premium coffee brand by giving customers a more intimate experience with revamped store decor and new menu items. The coffee chain has proven that it is able to change with the times, making it among the best long-term stocks to buy.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.