User 283977

Wendy's: The Best Value Menu for Your Portfolio

Here we are on June 11, 2009. WEN is at 3.74 and fading. It appears to be heading for its lower level support level of $3.50. I guess the revamped restaurants and menus are not working as anticipated. I have seen some advertising for WEN, but I doubt its enough to generate NEW traffic. Add on to this WEN advocate Bill Ackman appears to be selling out of his position, and things are not looking good. Time for some realistic research designed to find out where they stand, and why they are not growing. Something is clearly wrong.

Wendy's: The Best Value Menu for Your Portfolio

I think its important to think about risk in times like these. Which investment is more risky, McDonalds or Wendy's?

McDonalds performance was somewhat decoupled from general market performance during the recent crash, so its stock valuation is somewhat safe. We don't know if Wendy's performance is decoupled because Wendy's stock price has been dropping consistently over the past two years.

The analyst says that the earnings growth rate of McDonalds is 9.33% per year while Wendy's is 14.3%. That looks good. However, I would argue that the McDonalds growth rate figure is more reliable then the Wendy's number because Wendy's number is based on the performance of a new menu in conjunction with a recent merger. Does that Wendy's growth rate have legs?

In order for any company to grow, they need capital. I note that Wendy's provides a dividend of about 1 cent per share. Yet even at that low level, its dividend payout ratio is 88%. Dividend payout ratios above 50% for standard equities are suggestive of capitalization issues. This raises questions about the sustainability of that reported Wendy's growth rate figure. The data seems to suggest that Wendy's should drop the minimal dividend and save their capital for growth. At this point in time, Wendy's is not a dividend investors stock, it’s a potential growth stock. If you are going for growth, why not maximize your operations for growth? So if Wendy's management thinks they are going to be substantially growing, why are they still paying that dividend?

Given that big pop on Friday, I think I would wait to see if the stock rebounds as investors take profits. Looking at Wendy's chart, it looks like there is a historical support level at about 5.5, and another at about 6.5. However, those support levels are based on the performance of its historical menu, not its new menu. As a consequence, if Wendy's price broke out of that older support level at $6.5, I would be more inclined to believe the near-term sustainability of that 14.3% growth rate.

My perception is that the general markets are going to be going sideways for most of 2009, punctuated with some periods of substantial ups and downs. I think the current economic environment favours large cap dividend earning stocks as opposed to growth stocks. I suspect few companies are going to be growing in 2009.

Disclosure: I own a small position in McDonalds and intend to sell at $65.

Ban on Fast-Food Ads Would Cut Childhood Obesity 18%

The more TV a child watches, the less physical activity. The less physical activity, the higher the probability of obesity. I wonder how much NIH funding was wasted on this.