A Better Investment Than Yum! Brands, Inc. (YUM)?

Chipotle Mexican Grill, Inc. (NYSE:CMG) doesn’t offer any yield, and it’s trading at 39 times earnings. Therefore, the risk/reward ratio isn’t ideal. That said, Sterne Agee recently initiated coverage with a Buy rating, and it set a $429 price target on Chipotle, citing the likelihood for increased market share gains in coming quarters.

It should be noted that the shorts are all over this stock, likely anticipating that the company’s expectations have exceeded its actual growth potential. The good news for longs is that Chipotle Mexican Grill, Inc. (NYSE:CMG) maintains a pristine balance sheet, which should help limit any downside potential. If things go south, Chipotle has the capability of returning capital to shareholders, which would attract more investors.

Conclusion

All three of the aforementioned companies offer intriguing investment opportunities. However, Chipotle Mexican Grill, Inc. (NYSE:CMG) looks to be the least intriguing of the three due to its valuation and current lack of yield. If the stock doesn’t perform well, then you at least want to receive some dividend payments to help ease the pain. On the other hand, a lack of dividend payments has helped Chipotle maintain an excellent balance sheet and focus on growth.

Yum! Brands, Inc. (NYSE:YUM) is growing, but there has been a lot of drama surrounding the company as of late. The company’s debt-to-equity ratio of 1.2 is also higher than the industry average of 0.7. Highly-leveraged companies are less likely to return more capital to shareholders, and they don’t hold up as well in difficult market environments.

McDonald’s Corporation (NYSE:MCD) offers fair valuation at 19 times earnings, its margins are above average, it offers a 3.2% yield, debt management has been strong, and it’s one of the strongest brand names in the world. Furthermore, its size and diversification make it very resilient in bear markets.

The article A Better Investment Than Yum! Brands? originally appeared on Fool.com.

Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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