The Hottest 5 Stocks in Hell

Many of us who studied English literature back in the day were required to read Dante Alighieri's epic poem Divine Comedy.  The poem was written in the 14th century and still has relevance today.  Specifically, it's the Third Circle of Hell from Dante's Inferno that provides the basis for Dante's 4 hot stock picks.  Let me explain and also do my best not to smear the giant pizza that I'm eating all over the keyboard.

 

The Inferno's Third Circle is characterized by gluttonous behavior.  And because one characteristic of gluttony is an insatiable appetite for food, we'll link the first two of Dante's picks to overeating.  The overeating of fast foods is a national epidemic, as the 65% plus of obese and overweight Americans will attest.  Thus, Dante selects McDonald's (NYSE: MCD) and Yum! Brands (NYSE: YUM) as his first two investment delights.

 

                     

These two fast-food powerhouses are a one-two punch directly into the gut of healthy eating.  Both companies outweigh other industry players with metrics that lead the majority of analysts to rate them both a "Buy."  McDonald's with a market cap of $88.9 billion is roughly three times fatter than Yum! Brands with a $28.71 billion market cap.  Taking a bite out of McDonald's stock price more recently however, was a CEO change in June, an earnings miss in July, and lower than expected growth internationally.  But this may provide a nice buying opportunity now that shares are waddling around $88/share, roughly 5% ahead of the all-time low set in Sept. 2011, but 14% lower than the all time high of $102.22 set in January 2012.  Further, with a PE (ttm) of 16.4 (versus 22.9 for the industry), a dividend yield of 3.21%, 5-year average dividend growth of 22.87% and an increasing free cash flow, MCD might very well be worth adding to your plate.

 

 

The other hot pick from the Inferno and co-conspirator in the assault on your waistline is Yum! Brands. The street likes this stock for lots of reasons, from the leadership of CEO of the Year (Chief Executive Magazine award) David Novak, to it's expansion in emerging markets and retail development in China. Yum! has a PE (ttm) of 20.37 (still below the industry) and a dividend yield of 1.75%.  While YUM did miss versus estimate for second quarter earnings reported in July, the company has delivered a ROE (ttm) of 75.52% vs. an industry average of 23.26%.  There is some risk given the fact that Novak is also Chairman of the Board, and YUM has a GMI risk rating of "very aggressive," but just like the consumption of the high-fat foods they sell, you have decide if the risk is one worth taking.

 

Continuing with our hellish approach, an investment in fast food necessitates an investment in the strong concomitant industry of drugs.  Now I'm not sayin' that fast food causes health problems, but many others have.  So to put some meat on this hypothesis, take a gander at the "nutritional" values of some offerings.  At Kentucky Fried Chicken, we have the side order "Crispy Caesar Twister."  This bad boy of delish packs a whopping 744 calories, 41 grams of fat, 55 grams of cholesterol, and 1,616 mgs of sodium.  And that's just for one serving! Or, if you're hungry for breakfast and want to start your day off right, then enjoy Mickey D's Big Breakfast with Hotcakes and ingest the 1,090 calories, 56 grams of fat, 575 mgs of cholesterol, and 2150 mg of sodium!  It's no wonder that such "nourishment" leads me to Dante's next stock pick, drug-maker Pfizer (NYSE: PFE).

 

Pfizer is a major player in the remediation of high cholesterol with their iconic brand Lipitor (those of you out there who take it, put down your Big Mac and say "aye").  And although Pfizer lost patent protection on Lipitor last November and sales dropped from a peak of $13 billion a year to a 'measly' $7.9 billion, Pfizer has a hungry marketing and promotion plan in place to drive brand loyalty and gobble-up sales from generics.  Pfizer has a market cap of $177.03 billion, and shows great strength in terms of gross margins of 85.29% (industry is 69.53%) and profit margins of more than double the industry at 21.17%.  EPS growth last quarter vs. year ago levels shows strength at 31.25% and PFE has an annualized dividend yield of 3.71%.  Pfizer is a strong company with little volatility, and typically once individuals are prescribed Lipitor, they usually are on it for life.  So, if they can recapture the sales that went to generics, then billions will be recouped.

 

And so, if you are adding some fast foods to your portfolio then you really should add PFE as well.  They work together like a hand in glove . . . take the Lipitor, and eat more fast food!  Thus, our Third Circle is almost complete.  Just one final arc, which brings us to Dante's fourth and final pick: CVS Caremark (NYSE: CVS).   I discussed the strengths of CVS here, and why I believe that versus Walgreen, CVS is a stronger player and a great buy at the current time.   Additionally, with all the CVS drive-thrus available you don't even have to leave the car or stop eating . . . perfect!

 

As I finish my second pizza (the large size is just so minuscule), I hope that you'll take a look at these stocks as one overweight portfolio of profit-making opportunity.  There is no shame in riding the gluttony gravy-train from start to finish.  And we might as well, since our gains should offset what we're already paying for everyone's bad health with skyrocketing medical costs, chronic illness, and lost productivity.  But then again, who cares?  Especially since the gigantic size pizzas are "buy one, get one free" on Groupon!(NASDAQ: GRPN)

 

And, a mention of Groupon segues us nicely into Dante's Fourth Circle of Hell which is greed.  Because the Groupon IPO has been linked to "greed run amok" (also consider Groupon CEO Andrew Mason's turn-down of Google's $6 billion acquisition offer), now that the company is trading in the $4/share range (down roughly 86% from the high of $31.14/share) if you don't think that's hell for some Groupon investors . . .  then re-read Dante's Inferno and get back to me!