Institutional Investors lose appetite for fast food

Fast food and snack chains are renowned to profit and grow in times of financial downturns as cash strapped consumers forgo their healthy eating habits for more wallet friendly alternatives. But, fast food giants such as McDonald’s are successfully breaking this stereotype by offering healthier foods including fruit and oatmeal. However, The Financial Times warns of the costs and risks of companies moving away from their “less-calorie conscious roots”. We use securities lending flow to assess investor sentiment in the fast food related stocks including McDonald’s Corporation (NYSE:MCD), Domino’s Pizza Inc (NYSE:DPZ), PepsiCo, Inc (NYSE:PEP), Coca-Cola Company (NYSE:KO) and Dunkin’ Brands Group Inc (NASDAQ:DNKN).

McDonald’s shares touched a record high after it reported that second-quarter earnings exceeded expectations with the help of its more “relevant food” offering. Last week the fast-food chain bowed to pressure over its healthy “Happy Meals” marketing campaign. Short interest is low, as usual, at less than 1% of total shares and institutional owners who lend have expressed bearish sentiment having reduced their holdings by almost 10% to annual lows since May.

Domino’s Pizza Inc’s global expansion continues to drive sales, which has pushed the shares to new annual highs. In addition, the franchise business model has somewhat insulated the business from rising commodity costs and gas prices. Short interest is low at 1.6% of the company as short sellers have consistently covered their positions over the year. Institutional investors have been less positive towards the stock, gradually reducing holdings over the year. However the month of July saw a jump in total holdings to 11.5 million shares.

Drinks and snacks giant, Pepsico has also bought into the generation of nutritious products, aiming to double its revenues from the stream by the end of the decade. Institutional investors, however, are not so positive towards the stock. In line with the stock price falling to annual lows, the total holdings of funds who lend has reduced by almost 10% over the past two months. Competitor, Coca-Cola also sees similar activity from institutional investors. Total holdings have fallen by 7% after reaching annual highs in May. Short interest remains in both Pepsico and Coca-Cola has remained flat at 0.5% of total shares outstanding.

Finally, the IPO of Dunkin’ Brands Group Inc (NASDAQ:DNKN) has been well received by the markets as the stock surged by 47% on its debut. However, there has been mixed opinion from commentators with this mature and stable business being treated like a growth company such as LinkedIn, only without the Internet fizz. We will take a look at investor sentiment later this week.