We recently published a list of 11 Best Fast Food Stocks To Invest In Right Now. In this article, we are going to take a look at where Yum! Brands, Inc. (NYSE:YUM) stands against other best fast food stocks.
Fast food is integral to American culture and remains popular among adults and children. According to a report by the CDC, one-third of Americans consume fast food every day, while 83% of the country’s families dine out at a fast food restaurant at least once a week. Around 45% of the population aged between 20-39 consume fast food every day, while the indulgence rate of those between 40-59 years of age is slightly lower at 37.7%. On the other hand, 34% of children regularly eat fast food daily.
READ ALSO: 7 Cheap Food Stocks to Buy According to Analysts.
However, an increasing number of Americans are beginning to pull down on their consumption and eating less fast food per week due to high prices. A survey by Lending Tree in May 2024 highlighted that about 78% of the citizens consider fast food a ‘luxury’ after rampant inflation in the country has forced Americans to reassess their spending habits. Surge pricing in restaurants has also added to their worries, with about 72% confessing that they would prefer having fast food during discount hours.
Over the past year, menu prices have risen considerably in the US across the wider restaurant industry, driven by increased commodity and supply chain costs. This has boosted consumer desire in the country to eat at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
Despite challenges, the American restaurant industry remains resilient, primarily because it adapts well to changing consumer habits. The National Restaurant Association has forecast sales to top the $1 trillion mark in 2024 for the first time. It also expects the industry to create 200,000 new jobs, citing what is generally a strong demand from Americans to eat at restaurants.
A restaurant ETF issued by AdvisorShares, which invests exclusively in the restaurant and food industry has gained 18.32% YTD, outperforming the broader market by over six percentage points, as of the close of October 31. The Fed rate cuts will likely help restaurant stocks as they would to the broader market. The low cost of borrowing will boost consumer spending and ease the burden on restaurant owners, allowing them to go ahead with their expansion plans.
In September this year, the Federal Reserve announced a 50-basis point rate cut – the first since March 2020 – to lower the range of interest rates from 4.75% to 5%. Details emerging from the minutes of the September meeting disclosed a ‘substantial majority’ of central bankers backing the cut, which has raised optimism among investors for further cuts ahead in the November meeting.
Another encouraging recent trend has been the downturn in the country’s inflation, which dropped to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate.
A chef in a kitchen preparing a fast food meal of chicken, pizza and burgers.
Our Methodology
We used Finviz’s restaurant industry screener to sample stocks for this article and then identified the companies that dealt with fast food. Among them, we picked the top 11 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Yum! Brands, Inc. (NYSE:YUM)
Number of Hedge Fund Holders: 36
Yum! Brands, Inc. (NYSE:YUM) is an American multinational fast-food corporation that operates around 58,000 restaurants worldwide under the umbrella of KFC, Pizza Hut, Taco Bell, and Habit Burger & Grill.
The company is experiencing a downturn in same-store sales due to the ongoing conflict in the Middle East, which has resulted in slightly weaker demand amid calls for the boycott of Western products. Sales have been most affected in Middle Eastern countries, Malaysia, and Indonesia, with the impact of the conflict on sales also felt in several other countries. Moreover, cost-conscious consumers also present headwinds to Yum! Brands, Inc. (NYSE:YUM) as people worldwide become more careful about their spending.
Despite these pressures, the fast-food corporation reported robust results for the second quarter, declared on August 6. Worldwide systems grew by 3%, while core operating profit increased by 10%, driven by strong performances by the Taco Bell and KFC brands. Both combined delivered a system sales growth of 5% led by an 8% unit growth.
KFC in international markets (excluding China) that were not impacted by the Middle East crisis, has witnessed mid-single-digit growth in same-store sales. The brand also experienced significant growth in digital sales, which grew 20% during the quarter, with an impressive 40% surge in kiosk sales. The company is also undergoing massive expansion and acquired 216 KFC restaurants in the United Kingdom and Ireland, which has put KFC on track for 10,000 stores globally by the end of 2024.
Taco Bell’s performance has been impressive as well. It registered a 7% increase in system sales in the US, led by Cantana Chicken delivering above expectations. Same-store sales in the country grew 5%, outpacing the broader QSR market. It also benefited immensely from the launch of other innovative menu items like Secret Aardvark fries and Cheez-It.
Yum! Brands, Inc. (NYSE:YUM) is confident of delivering strong growth in 2025 as inflation moderates and margins grow. Wall Street analysts expect an uptick of 9.74%, in median terms, in its share price. Hedge fund sentiment is improving as well, with 36 hedge funds, amongst those tracked by Insider Monkey, having investments in the company at the end of the second quarter of 2024, up from 35 in Q1. It is one of the best fast food stocks to invest in right now.
Overall, YUM ranks 3rd among the 11 best fast food stocks to invest in right now. While we acknowledge the potential of fast food companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than YUM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
