Stock Analysis & Ideas

Fast-Food Stocks: Are Investors Winning or Just Sinning?

Story Highlights

Fast-food stocks are known as strongholds of safety during times of market turmoil. Yet, ethical considerations may weigh on your conscience, as corporations often prioritize profits over public welfare.

Among the values that Americans hold most dear, the freedom to choose is quite possibly at the top of the list. Indeed, the U.S. prides itself on upholding capitalism with no apologies and few limits, allowing consumers to over-consume and corporations to cater to our self-destructive instincts.

This presents a dilemma for conscientious investors, however. It’s the age-old debate around sin stocks, but with a modern twist: should we support fast-food companies with our investable capital during a time when the obesity crisis has reached epidemic proportions?

Of course, no one can answer that question except the individual investor and his or her conscience. Granted, it’s tempting to take a bite out of fast-food stocks during times of turmoil, as these assets are known as crisis hedges for their low betas and decent dividends.

That said, it’s up to you to weigh the crisis-hedging and profit-producing potential of each stock against the company’s impact on the populace. In the end, you might decide that even if fast food provides fast returns, the moral malaise may be too much to stomach.

Contributing to the Obesity Problem

If there’s at least one thing that adherents and opponents of fast-food stock investing should agree on, it’s that too many people are obese (i.e., grossly overweight). The Centers for Disease Control (CDC) states that approximately 36% of American adults are obese. Even more disturbingly, 17% of children in the U.S. are obese.

It’s not just an American problem, as the worldwide obesity rate has nearly tripled since 1975. Yet, it’s certainly not a coincidence that the U.S. obesity rate is so high while corporations like McDonald’s (NYSE: MCD), Yum Brands (NYSE: YUM) – which owns KFC, Taco Bell, and Pizza Hut – and Wendy’s (NASDAQ: WEN) all happen to be headquartered in America.

No one is seriously suggesting that fast-food businesses are solely responsible for the obesity crisis. There is the freedom to choose one’s lifestyle and habits, after all. Unfortunately, people often choose poorly, as roughly 60% of Americans get less than 15 minutes of exercise per day. Besides, supporters of fast-food corporations will argue that no one is forcing people to consume any particular type of food.

That said, it’s not difficult to connect the dots between fast food and the prevalence of obesity. 36.6% of adults, on average, consume fast food on any given day; one study of medical students found that believe it or not, 73.5% of them eat fast food once per week or more.

To call this an epidemic is no exaggeration. It’s estimated that 11.3% of an average adult’s daily calories come from fast food, but that’s not even the most disturbing aspect of the problem. Children are the real victims here, as they don’t have the maturity to make decisions about their health and well-being, and parents often determine what their kids eat. Tragically, it’s been estimated that 34% of children eat fast food daily and that on days when they eat fast food, children consume about 120 more calories.

Marketing to All of Us – Including Children

It’s difficult to prove beyond a shadow of a doubt that fast-food companies are deliberately trying to make Americans obese and unhealthy. However, the preponderance of the evidence does at least suggest that these businesses are primary contributors to the problem.

Nearly 80% of McDonald’s food was reportedly consumed by children, so it’s easy to see why these fast-food corporations push to get kids into their restaurants. After all, they can’t afford to lose their most lucrative consumer demographic.

Childhood obesity puts kids at risk for becoming obese as adults and is associated with conditions such as diabetes, cardiovascular disease, and some forms of cancer. These corporations know that kids crave fast food and that parents will often give in to their children’s cravings even when it’s not in their best interests.

Not only that, but these companies may actually target some of the most vulnerable families. Startlingly, a recent research study found that McDonald’s “used more child-targeted marketing themes and price promotions in lower-middle-income countries compared to higher-income countries.” The study also concluded that McDonald’s specifically used social media platforms like Instagram to target children, and even more so in lower-income regions.

Surely, fast-food businesses are aware that they’re marketing unhealthy food options to children. The University of Connecticut’s Rudd Center for Food Policy and Health found that over one-third of food products advertised to children aren’t considered healthy dietary options. Yet, they push these unhealthy food choices with the knowledge that marketing to children is highly effective.

A large-scale study found that when young people are exposed to marketing campaigns for food and beverage products, were up to 30% more likely to indicate a preference for the promoted brands.

Conclusion: We All Have Choices to Make

Just as parents and their children have the right to consume fast food, you have the right to invest in businesses that promote unhealthy dietary options. It’s up to each individual to decide what investments fit into their ethical and financial objectives.

As the U.S. and other nations teeter on the brink of recession, buying shares of MCD, YUM, or WEN is as tempting as grabbing a burger and fries for dinner. It’s quick, easy, and feels like a good idea at the time of purchase.

As you collect those seemingly delicious dividends, though, just consider where those payouts really came from. More often than not, the corporate profits that get funneled back to the shareholders come from families and especially children, who need and deserve the best possible nutrition during their formative years. So, it’s perfectly okay to think twice when ordering a serving of fast-food stocks – which, if you take the time to think about it, could leave a really bad taste in your mouth.

Disclosure

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