Two Giants Blindsided by Major Trends

 | Jul 23, 2014 | 1:54 PM EDT
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Maybe it's all a giant SAT analogy test. Here, take it: McDonald's (MCD) is to Chipotle Mexican Grill (CMG) as GlaxoSmithKline (GSK) is to a.) Celgene (CELG), b.) Gilead (GILD), c.) Biogen-Idec (BIIB), d.) Regeneron (REGN) or e.) all of the above.

Amazingly, in this case, the answer is e.) all of the above, because while there's really only one Chipotle, meaning one really fast-growing restaurant chain, we have the four horsemen of biotech, the ones I write about in Get Rich Carefully, all breaking out while both McDonald's and GlaxoSmithKline stumble.

It's a cute little quiz, and you don't need Kaplan to figure it out, but these really are the correct analogies. Today we got a host of McDonald's downgrades because of the total lack of growth at the Golden Arches, in large part because, truly, I think, the world has caught on to the fact that cheap, tasty food may be no bargain if, in the long run, it's bad for you. The natural and organic craze isn't a craze any more. In fact, it isn't even a phase. It's an actual real-life mindset, and it's no longer just in the U.S. Hence why the rest of the world's numbers, after saving McDonald's for ages, can no longer do it.

The only thing that saves McDonald's now is the dividend, which is outsized, and because the company spews cash, it can grow ever bigger. The balance sheet allows for "flexibility," as they say in the research business, and that's keeping even more exasperated people from dumping the stock and allowing it to stay in the mid-$90s. That's down from $103 but still above its 52-week-low from February of this year, when interest rates were less competitive to the yield of the fast-food chain.

Chipotle, which I am interviewing tonight on "Mad Money," never ceases to amaze, both with its irony -- yes indeed, McDonald's did own the company at one time -- and it's not-very-veiled anti-McDonald's attitude and menu. When Chipotle teaches you about the "farmed and dangerous" way that typical fast-food firms make and ply their wares, you think of McDonald's. You may know the McDonald's ads by heart, but how about the fact that 13 million people have watched "The Scarecrow," an animated short by Chipotle that condemns the very industry that McDonald's feasts from?

The campaign has given Chipotle plus-17% comparable-store sales numbers, but it has also no doubt contributed to the negative numbers McDonald's has been putting out.

Glaxo is the pharmaceutical version of McDonald's with its now-dwindling sales of its anti-asthma drug Advair and its heart medicine Lovaza, feeling a lot like the trajectory of the Big Macs and Chicken McNuggets, with the exception that generics are wrecking Glaxo's margins, while worries about health and the food chain might be driving away the patrons of McDonald's.

That's what's so important about the four horsemen of the Big Pharma apocalypse. Groan as the insurance companies may about needed reimbursements, the patented products of Biogen, which reported spectacular numbers today, along with Gilead's hep C cure, Sovaldi, Celgene's Revlimid drug for blood cancers and Regeneron's Eyela, are all game-changers that have much longer lives and big earnings numbers ahead of them than anything Glaxo seems to have up its sleeve.

Speaking of irony, it's unthinkable that McDonald's would buy back Chipotle. The corporate world is nutty but not that nutty. However, at one time I would have suggested that the $122 billion GlaxoSmithKline buy one of the four horsemen. Those days are now pretty much over, though, because of the growing size of the biotech market caps as well as the shrinking of Glaxo's enterprise worth. Celgene and Biogen are $71 billion and $79 billion respectively. Gilead at $137 billion is $15 billion larger than Glaxo. Regeneron is "only" at $31 billion, but Sanofi (SNY) has got a big stake in it, and that stake is growing to 22% by the end of the month.

Yep, the four horsemen of the Big Pharma apocalypse and the lone gunman of fast food are the winners, and they are making losers out of the old-guard titans like Glaxo and McDonald's, right before our eyes. 

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