Obama's Minimum Wage Increase has Wall Street Picking Winners from Losers
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During his State of the Union address Tuesday evening President Barack Obama proposed boosting the Federal Minimum wage to $9 an hour from $7.25, in an effort to help reduce poverty and support low-income American. The news has stirred debate among economists and in political circles, but rhetoric aside investors are taking a more pragmatic view and examining stocks that could potentially be impacted by the proposed change.
McDonalds (NYSE: MCD) is a company that makes the top of this list, and so are its peers like Burger King Worldwide (NYSE: BKW), Wendy's (NYSE: WEN) Jack in the Box Inc. (Nasdaq: JACK), and Yum! Brands, Inc. (NYSE: YUM). All of these stocks are lower on Wednesday, suggesting that Obama's proposal is already have an effect.
If the minimum wage is increased, there is a chance fast food companies will be able to pass on some of the costs to costumers, though there could be margin pressure given intense competition in the space. Manufacturing companies that employ minimum wage workers will have a much more difficult time passing on costs as they run into competition from foreign competitors.
One segment of the population that could potential benefit from a higher minimum wage is young people. About half the workers on minimum wage are under the age of 25. As their wage goes up, it could help spur spending by this segment of the population, and companies with products that target them could benefit. On the other side of the coin, the higher minimum wage could eliminate many low-income jobs altogether.
From an investor standpoint, one question worth asking is what do young people spend their money on, and what stock would benefit as a result? Cigarettes are an example, and interestingly Philip Morris International, Inc. (NYSE: PM) is higher on Wednesday, though this could be unrelated.
Clothing is another area where young Americans spend money. Sadly, many retailers also employ minimum wage employees, so perhaps this trade is a wash.
In any case, the ball is now rolling and analysts and investors everywhere have already begun to parse the numbers on Obama's proposed change to the Federal minimum wage, sorting out the winners from the losers. One thing is for sure, if implemented the new minimum wage will without a doubt create change. Is it 'change we can believe in'? That is another story.
McDonalds (NYSE: MCD) is a company that makes the top of this list, and so are its peers like Burger King Worldwide (NYSE: BKW), Wendy's (NYSE: WEN) Jack in the Box Inc. (Nasdaq: JACK), and Yum! Brands, Inc. (NYSE: YUM). All of these stocks are lower on Wednesday, suggesting that Obama's proposal is already have an effect.
If the minimum wage is increased, there is a chance fast food companies will be able to pass on some of the costs to costumers, though there could be margin pressure given intense competition in the space. Manufacturing companies that employ minimum wage workers will have a much more difficult time passing on costs as they run into competition from foreign competitors.
One segment of the population that could potential benefit from a higher minimum wage is young people. About half the workers on minimum wage are under the age of 25. As their wage goes up, it could help spur spending by this segment of the population, and companies with products that target them could benefit. On the other side of the coin, the higher minimum wage could eliminate many low-income jobs altogether.
From an investor standpoint, one question worth asking is what do young people spend their money on, and what stock would benefit as a result? Cigarettes are an example, and interestingly Philip Morris International, Inc. (NYSE: PM) is higher on Wednesday, though this could be unrelated.
Clothing is another area where young Americans spend money. Sadly, many retailers also employ minimum wage employees, so perhaps this trade is a wash.
In any case, the ball is now rolling and analysts and investors everywhere have already begun to parse the numbers on Obama's proposed change to the Federal minimum wage, sorting out the winners from the losers. One thing is for sure, if implemented the new minimum wage will without a doubt create change. Is it 'change we can believe in'? That is another story.
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