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

    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 for the latest directional predictions and probabilities for any stocks you own with an exposure to China.


    Jun 11 10:19 AM | Link | Comment!
  • Economic News June 7: Taking Stock Of The Latest Global Economic Data Or News

    Much of the economic news coming out of the US, Europe and China lately has largely been a disappointment but not all of the economic news has been bad as there are reasons to also remain cautiously optimistic. Hence, here is a quick compilation of the latest economic news impacting the global economy:

    • The Fed's US Economic Survey. On Wednesday, the Federal Reserve released a survey based on anecdotal information from the Fed's 12 regional banks covering April 3 to May 25 that seemed to give a more optimistic take on the US economy. For New York, Boston, Richmond, St Louis, Minneapolis, Kansas City, Dallas and San Francisco, there appears to at least be moderate growth. Boston, Dallas and San Francisco also noted activity in the IT sector - including continued demand or even some hiring. Cleveland and Chicago also reported stability or growth in the manufacturing sector while Boston, New York, Philadelphia, St Louis and Dallas reported improvements in their housing sectors.
    • China Cuts Lending Rate Too Stall a Slowdown. Late Thursday China time, the People's Bank of China announced that the regulated one-year corporate lending rate would fall to 6.31% from 6.56% on Friday. The one-year deposit rate will also fall from 3.5% to 3.25% - a move that will also hurt savers. However, the signs of economic stress in China are apparently becoming more obvious as the New York Times has reported that factories are closing while the work week at construction sites in inland provinces have been cut from three shifts a day to just one.
    • Capital Flows to Emerging Markets Expected to Slow. On Thursday, the Institute of International Finance said that it expects net capital flows to emerging markets to fall this year thanks to the European debt crisis. Specifically, the IIF expects net capital flows to emerging economies to fall by $100 billion to $912 billion. However, this figure is still better than a previous estimate of just $746 billion given back in January.
    • ECB Chief Sees a Gradual Recovery. Mario Draghi, the head of the European Central Bank, has recently said he is staying with his forecast for a gradual economic recovery this year in the Eurozone but the debt crisis also means increased "downside risk" to growth. Moreover, the ECB has left its growth projection unchanged at between 0.5% and 0.3% for the year. However, there is still plenty of trouble brewing as the crisis seems to have moved from Greece to Spain and could easily move to another country later this year.
    • Australia Continues to Add Jobs. On Thursday, the Australian Bureau of Statistics announced that a net 38,900 jobs were created last month, a figure that defied predictions of no growth in jobs. However, the unemployment rate did rise from 5% to 5.1% as apparently more people looked for work. Nevertheless, Australia has one of the lowest unemployment rates in the developed world.

    In other words, the wheels on the global economy have not exactly fallen off like during the 2008 financial crisis but we are far from being out of the words just yet as plenty can still go wrong. Hence, keep an eye on the latest headlines and be sure to check our stock forecasts for the stocks you trade as there is still bound to be plenty of volatility in the months ahead.


    Jun 07 1:07 PM | Link | Comment!
  • Stock Market Watch: Are Investors Forgetting Its An Election Year?

    The May jobs report seemed to be yet another data indicator in a whole series of data indicators over the past month that the economy is slowing but are investors also forgetting its an election year?

    Specifically, Lee Munson, the author of Rigged Money and the CIO at Portfolio, LLC, recently went on Yahoo! Finance's Breakout program to remind investors that we are in an election year and he cited historical data that indicates the weakest months leading up to a presidential race are the months of April and May while the strongest months are June, July and August. In other words and historically speaking, the stock market heats up in the summer of an election year.

    However, another rally seems far off given that the major US indexes are now approaching the point of giving up all of their gains for 2012. Specifically, the Dow Jones Industrial Average went in the red last Friday while the S&P 500 is just 1% away from turning negative and Nasdaq still 5% higher for the year.

    On the other hand and as we noted in an earlier post (Stock Market Watch Starting May 1: A Wrap-up of This Year's "Sell in May and Go Away" Advice), Frank Holmes, the CEO and Chief Investment Officer of US Global Investors, had pointed out that since 1972, the stock market has rallied in 5 out of 8 election years since 1972 with market gains of 12-26% with the exceptions being recession years like 2000 and 2008.

    Moreover and in theory, the reason for stock market gains during an election year is that the President (in theory) will want to ensure that all of the bad news is out of the way long before there is an election. Hence, the stock market is free to rise. Given that gains or losses in the Dow during the two months just before the election will mean a win or a defeat, respectively, for who ever the incumbent is nearly 90% of the time, there is plenty of incentive to do what ever it takes to prop up the stock market.

    So what kind of stocks should investors and traders alike be looking at? Munson believes that June is going to be the time to get in the stock market to buy into a "very nice" pre-election summer rally but he also cautions that fundamentals are just as important and that investors need to pay attention to the labor market's slow growth. Hence, he advices investors to avoid stocks that have anything to do with Europe and to stick with the S&P 500.

    Finally and as we enter an uncertain summer before the next election, be sure to keep checking for the latest predictions about the stocks you trade along with our My Portfolio screen where you can easily keep track of your trading or investment portfolio.


    Jun 05 11:51 AM | Link | Comment!
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