Shares of fast food restaurants slipped Tuesday after a JPMorgan analyst said the weak economy may be hurting the sector.
Analyst John Ivankoe said in a client note that although investors have benefited from big gains in fast food stocks like McDonald's Corp. and Burger King Corp. recently, sales growth in the U.S. is slowing and a stronger dollar implies lower foreign exchange benefits may be possible.
Given those factors, he said, "we are becoming more cautious regarding expectations for near-term outperformance."
Stocks like McDonald's and Burger King will likely still report strong earnings due to their overseas presence and limited company ownership, he added, but other stocks may be a better value for investors since those two are already trading near the high end of their 52-week ranges.
Ivankoe cited Yum Brands Inc., which operates Taco Bell, Pizza Hut and KFC, and pizza delivery chain Domino's Pizza Inc. as two of his favorite choices.
He recommended investors stay away from fast food companies that do not have a large international business, especially those with a higher-than-average number of restaurants owned by the company itself since the company is more exposed to higher costs when it owns its own locations.
McDonald's shares fell 68 cents to $59.77 in morning trading while Burger King shares fell 58 cents to $29.65.
Yum Brands shares, meanwhile, fell 87 cents, or 2.1 percent, to $39.93 and Domino's shares dipped 7 cents to $12.88.
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