Just when McDonald's (NYSE:MCD) was all gung-ho about beefing up its image, a warning about French fries comes along to ruin the company's mood.
Ever hear of acrylamide? It sounds nasty, to be sure. Not only does it sound nasty, it just might be nasty. According to a Reuters article, California Attorney General Bill Lockyer wants fast-food joints like McDonald's, Wendy's (NYSE:WEN), and Yum! Brands (NYSE:YUM) to warn consumers that the carcinogen acrylamide tends to form during the cooking process of potatoes. (He's even gone so far as to file a lawsuit over the issue.) And this involves potato chips, too. So PepsiCo (NYSE:PEP) and Procter & Gamble (NYSE:PG) have to be considered, since the former has the Frito-Lay division and the latter makes one of my favorite products, Pringles.
The jury hasn't reached a complete verdict on the actual danger level of acrylamide. It was reported in the Reuters piece that the FDA isn't certain yet about the exact risk posed to humans by ingestion of small quantities of the organic molecule. Yet how should investors in any of these companies take such news?
Well, the acrylamide subject has been around for a few years, and as time goes on, more scrutiny will be allocated toward it. I'd wager that it might have an effect on some of the stocks mentioned if customers really begin to worry. (I don't see a lot of danger for Procter & Gamble, though, since Pringles isn't the major driving force behind the company.) However, when I say "have an effect," will it be a significant, long-term effect? My guess is -- no.
History shows that companies react to macro trends and adapt accordingly. For example, McDonald's highlighted salad offerings and cajoled its users into recognizing the benefits of walking. (I have one of those step-o-meter things Mickey Dee's distributed a while ago.)
Anyone who buys shares of McDonald's or Wendy's for the long haul will always have health concerns as a risk, especially as the cost of health care continues to inflate rapidly. Investors will always have to deal with governmental entities searching for ways to regulate such companies and coerce them into slapping warning labels on their products -- thus providing the potential for decreased sales revenue.
The world, however, will never live without fast food or potato chips. This culinary genre is in no danger of going the way of the dinosaur.
The company with the biggest risk here is McDonald's, since its French fries differentiate it from the competition. Come on, now, admit it. The fact that I just mentioned them made your mouth water! Recall, however, when the fries caused an uproar with vegetarians because they contained beef flavoring -- and that didn't stop the company. How about mad-cow plagues? And Morgan Spurlock's documentary? Again, McDonald's is still in business.
Acrylamide is a concern, and I'm glad it's being considered. From an investing viewpoint, though, it won't be the end of the world for these stocks. More important considerations are long-term charts, PEGs, and cash flow.
Will you be having fries with that Take?
Fool contributor Steven Mallas owns shares in none of the companies mentioned. The Fool has a disclosure policy.
