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Mad cow: Buy now?
Analysts say U.S. beef scare makes restaurant stocks an attractive play if BSE report is isolated.
December 25, 2003: 1:27 PM EST
By Parija Bhatnagar, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The mad cow scare may have sent restaurant-stock owners into a tizzy Wednesday, but a few Wall Street analysts believe U.S. investors shouldn't be cowed by one "isolated" case of the disease.

Indeed, the announcement from the U.S. Department of Agriculture late Tuesday of what may prove to be the first case of mad cow disease in the United States initially damaged shares of companies with a large exposure to beef.

Among the casualties were shares of steak houses Outback Steakhouse (OSI: Research, Estimates) and Lone Star (STAR: Research, Estimates), where beef is the vast majority of the menu, and fast-food chains McDonald's (MCD: Research, Estimates), Wendy's (WEN: Research, Estimates) and Jack in the Box (JBX: Research, Estimates). Trading volumes on restaurant and other beef-related stocks were higher than usual, in some cases almost triple the average trading volume.

Industry watchers, however, appeared to play down the development, calling the sector sell-off little more than a "knee-jerk" reaction to the news.

Some even went out on a limb to say that the mad cow case could create a buying opportunity for restaurant stocks.

"We believe that the likely impact from this case of mad cow will be positive -- not negative -- for the restaurant names, " UBS analyst David Palmer wrote in a research report.

"The key reason for this are that the negative publicity will likely be fleeting, and therefore the consumer response minimal. Secondly, importers of US beef will likely ban our supply, which could send prices down 20 percent or more."

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Separately, CIBC World Markets said in a report that "buying on mad cow dips has been a successful strategy in past outbreaks."

"There are several cross-currents in the industry that can overpower this development if it remains an isolated case," said one analyst who did not want to be identified. "The Atkins diet [high-protein and meat-based] is very popular around the country, beef prices are higher by as much as 14 percent year-over-year at the retail level. With the rebound in the economy, consumers are trading up to beef from chicken and pork."

Nevertheless, others say it would take just one more reported case of an infected cow to change these opinions.

"The big question, and therefore question mark with respect to the industry impact, needing to be answered, is to what extent this may or may not be an isolated event," said Mat Johnson with the Quantit Economic Group.  Top of page


--analysts quoted in the story do not own shares of the companies that they cover and their firms do not have an investment banking relationship with the companies mentioned in the story




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.