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Stock Of The Week: Global Fast Food Stocks Feel China's Economic Pain

|Includes:McDonald's Corporation (MCD), YUM

Too much globalization and exposure to China may be a bad thing for fast food stocks like McDonald's Corporation (NYSE:MCD) and Yum! Brands (NYSE:YUM) as both took a hit on Friday due to the global economy and concerns over China.

Specifically and on Thursday, McDonald's Corporation (MCD) had closed at $88.38 but on Friday it opened at $86.40, ranged from $85.92 to $88.27 for the day and ultimately closed down 0.71% to $87.75. However, Yum! Brands (YUM) had a worst day. It had closed at $66.77 on Thursday, opened at $64.89 on Friday, had a range of $62.37 to $64.90 and closed down 3.26% to $64.69.

The trigger for the fall was an announcement from McDonald's Corporation (MCD) that while global sales at stores open at least 13 months had risen 3.3% in May thanks to strength in the US and Europe where sales rose 4.4% and 2.9% respectively but sales fell 1.7% in the Asia Pacific, the Middle East and Africa regions in part due to a new "value dinner" promotion in China. Moreover, McDonald's Corporation (MCD) warned that global economic volatility along with rising expenses are pressuring its second-quarter results.

Meanwhile, Yum! Brands (YUM) derives 40% of its operating profits from China and it has also issued reports pointing to a slowdown there. In fact and for the fourth quarter of 2011, Yum! Brands (YUM) had reported 21% same-store sales growth in China but that figured dropped to 14% for the first quarter. Of course, 14% growth rates is not particularly disappointing but then again, companies like Yum! Brands (YUM) have been relying on China's outsized growth to prop up both revenues and earnings.

However, not all of McDonald's Corporation (MCD) and Yum! Brands' (YUM) peers are relying on China. A recent article in Forbes noted that Dunkin Brands Group (NASDAQ:DNKN) is actually focused on penetrating the US market even further as 95% of its stores are still east of the Mississippi. Dunkin Brands Group (DNKN) is also up 32.83% since the start of the year and up 19.1% since last July.

On the other hand, McDonald's Corporation (MCD) is down 12.5% since the start of the year, up 8.1% over the past year and up 70.7% over the past five years while Yum! Brands' (YUM) is up 9.5% since the start of the year, up 20.6% over the past year and up 92.2% over the past five years. In other words and while McDonald's Corporation (MCD) and Yum! Brands' (YUM) have had a great long-term performance; it does not mean it will continue should China slow hard.

Hence and if you own a stock with significant exposure or dependence on China for both growth and earnings, you will need to be keeping a close eye on the latest news out of China. Likewise, be sure to check NextCandle.com for the latest directional predictions and probabilities for any stocks you own with an exposure to China.

NOTE: THIS PIECE WAS JUST POSTED ON THE NEXTCANDLE.COM BLOG.

Stocks: MCD, YUM