The recent wave of panic selling may continue over the short-term.
Investors have been able to do well in an environment of declining bond coupon values. Generally speaking, investors are rotating out of low risk securities and have been buying into higher risk securities in order to avoid the loss of capital from a depreciating bond portfolio.
Therefore, the logical conclusion was to buy stocks. Therefore, in this environment low risk, non-cyclical stocks trading at a reasonable P/E multiple should be bought. In order to do this, I am going to focus on three names in the restaurant sector that will help to protect an investor’s portfolio.
Restaurants are always good
Generally speaking, an investor has a decent chance of protecting their investment portfolio by being invested in restaurant chains. The service sector has been able to grow consistently, and everyone loves eating out. The sector is somewhat non-cyclical.
The restaurant sector is pretty well hedged against technology. Meaning that unlike investing into Hewlett-Packard Company (NYSE:HPQ) or Google Inc (NASDAQ:GOOG) the company doesn’t have to worry about a technological revolution that can make the company’s current portfolio of products obsolete. After all, how do you replace the brilliance of the “drive through.”
I’m lovin’ it
McDonald’s Corporation (NYSE:MCD) is still one of my favorite stocks right now. It trades at a reasonable 17.9 earnings multiple. The company has $2.3 billion in cash on its balance sheet,and is therefore financially stable. The company’s growth is primarily driven by its ability to increase the average revenues generated per McDonald’s Corporation (NYSE:MCD) restaurant or increases in the number of McDonald’s Corporation (NYSE:MCD) locations worldwide. For now, the management team is focused on increasing the quality of the McDonald’s Corporation (NYSE:MCD) dining experience by encouraging franchisees to stay open late, and offer the breakfast menu over the course of the day. The company is also increasing the number of its product offerings through its McCafe.
Analysts on a consensus basis anticipate the company to grow its earnings by 6.3% for the full-year. It’s a little lower than the historical 8.76% average over the past 5 years, as the company is focused on store remodeling and improving the McDonald’s experience to remain competitive with Burger King Worldwide Inc (NYSE:BKW) and Jack in the Box. Currently McDonald’s Corporation (NYSE:MCD) pays its investors a 3.19% dividend yield, so you get a proper mix of income and growth.
Think outside the bun
Yum! Brands, Inc. (NYSE:YUM) is another one of my home grown favorites. The company operates KFC, Taco Bell, and Pizza Huts around the world. Yum! Brands, Inc. (NYSE:YUM) is focused on selling food that doesn’t involve a meat patty stuck between two bread buns. That may be why the company has been deploying a lot of capital to expand into China with its franchises.
Yum! Brands, Inc. (NYSE:YUM) trades at a 21.5 earnings multiple, which is fairly reasonable, because of the low amount of risk franchised restaurant operators have when compared to other industries. Also, the growth strategy is fairly predictable, making it an easy investment for mutual funds that want to earn safe investment yields.