McDonald's

Ticker: MCD

Recommendation: Sell

    No restaurant has played the recession better than McDonald's. It entered the downturn with a host of ideas to boost profitability, including healthier menus and high-margin drinks like the McCafe Frappe. Now the stock is starting to look frothy. After restructurings, operating margins are at all-time highs, according to Morningstar analyst R.J. Hottovy. That suggests there isn't much fat left to cut, and the stock is up 36% in the past year. With a strengthening U.S. dollar, which reduces revenues from abroad, and the prospect of lower inflation (and thus lower price increases), McDonald's may struggle to maintain recent same-store sales increases. Hottovy calculates the fair value of McDonald's stock, which has been trading around $74, to be $66: "They still have interesting things in the pipeline--McCafe, smoothies. But there's a lot built into the share price now." Let McDonald's cool off before buying.

Campbell Soup

Ticker: CPB

Recommendation: Hold

    The soup play may be over for now. Over the past year Campbell benefited from lower commodity costs, reduced spending on advertising, and the appeal of its brands as inexpensive ways to eat. The company (which also owns V8, Pepperidge Farm, and Swanson) profits when recession-weary consumers stay home. Its shares have gained a hearty 9% in the past year as the S&P 500 rose by 7%. But Campbell Soup's improvement is likely to reverse in the next year. Goldman Sachs estimates commodity inflation of 3% in Campbell's 2011 fiscal year. And if the company, based in Camden, N.J., is going to fend off a decline in soup consumption -- U.S. sales fell by 3% in the past 12 months -- it may have to pour more money into advertising. With Campbell trading at a price/earnings multiple similar to stronger food brands like PepsiCo and Kraft, investors should look elsewhere for deals.

Pacific Gas & Electric

Ticker: PCG

Recommendation: Sell

    Shares of Pacific Gas & Electric sizzled this summer before one of the utility's natural-gas pipelines exploded last week in San Bruno, Calif. The blast killed at least four people, injured several more, and destroyed nearly 40 homes. PG&E announced a $100 million fund this week to compensate residents. The stock fell 9% on the news, wiping out $1.5 billion in value, before recovering a little Tuesday. But shares still offer opportunity. Based in San Francisco, PG&E is one of the country's largest utilities. Even before the explosion, a cloud remained over the stock, as PG&E debates rate increases with regulators. Investors worry that a poor state economy and gubernatorial elections in the fall may limit those increases. Bank of America Merrill Lynch analyst Steve Fleishman argues that PG&E is still a smart buy. "The stock reaction on Friday seemed overdone, but we do expect some rockiness in the stock in the coming days," he wrote in a Monday note to clients. "Over time, we believe this headline risk will settle down and the stock is at an attractive valuation point to buy it." Shares trade around 13 times next year's earnings estimates and have a dividend yield of 4%. Fleishman expects PG&E to increase earnings by 6% to 7% annually over the next five years and to raise the dividend. He thinks the stock will rise to $49 in the next year. With its large investments in renewable energy, the utility looks like an even longer-term play.