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Yummy, Yummy, Yummy, There's No E. Coli In My Tummy
Dear American Capitalist Reader,
“Health scares generally do not cause a food chain’s performance to suffer in the long term. If it’s an isolated incident and it doesn’t persist, consumers tend to have short-term memories,” according to an analyst quoted by the Associated Press.
And it’s likely to hold true for the likes of Yum Brands, whose Taco Bell restaurants’ E. coli scare sickened 71 customers at Taco Bell restaurants in early December. While customers may temporarily stay away from Taco Bell, take a look at Yum Brands as a whole longer-term. This is a strong company with strong growth.
It’s not as if this is a repeat of the 1993 Jack in the Box incident when hundreds were sickened and four children died from under-cooked meat. Jack in the Box was nearly bankrupted. And they’re still trying to come back from it. For Yum, this was an isolated incident that is likely to blow over quickly.
Heck, look at McDonald’s. The burger chain saw its stock lose $1.5 billion in market value in 2003 thanks to a wildly overblown mad cow scare. A cow had been diagnosed with mad cow in Canada, and it set off a time bomb of groundless panicking. But look where McDonald’s is now. It’s sitting a top a new all-time high after getting over the mad cow phenomenon.
Even better for Yum, according to USAToday.com, “About 1 in 3 frequent fast-food customers say they plan to eat less often at Taco Bell — or not at all — as a result of the chain's recent E. coli outbreak… Yet the online poll, by food service research firm Sandelman & Associates, shows fast food eaters are satisfied with how Taco Bell handled the crisis in which 71 people fell ill after eating at the Mexican-style chain. Seventy-five percent of those surveyed rate Taco Bell's actions after the outbreak as ‘good,’ ‘very good’ or ‘excellent.’”
Near-term, the E. coli outbreak will hurt sales for Yum. Longer-term, Yum is an attractive buy. Right now, as long as the media hits the public with constant stories and imagery of sick fast food eaters, the stock is likely to suffer. However, once it blows over in the press, the stock will recover nicely… just as McDonald’s and Jack in the Box eventually did.
Take care,
Ian L. Cooper, Editor, Early Alert Trader and Death Cross Trader
