McDonald's takes the Pepsi Challenge ... and Coke wins

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In a shocking display of Dow Jones Industrial Average cronyism, fast-food titan McDonald's Corporation (NYSE: MCD) recently announced that it will stop test sales of soft drinks made by PepsiCo Inc. (NYSE: PEP). The decision means that Coca-Cola Company (NYSE: KO) products will retain their title as the preferred beverage line of the Golden Arches.

The announcement by Mickey D's ends an experiment where the fast-food chain offered bottled Pepsi beverages, including Mountain Dew, Gatorade, and Lipton tea, to consumers in several test markets. After the apparently underwhelming response from McDonald's clientele, Pepsi spokesman Larry Jabbonsky chalked up the experience to "a great opportunity and a great learning experience."



By my count, this is the second crushing moral loss for Pepsi during the last week. Time's Michael Scherer dealt the first blow when he reported on Friday that the Obama administration prefers Coke products to their Pepsi counterparts. In fact, when Scherer quizzed a White House official as to whether the administration truly preferred Coke, the staffer responded, "Don't most Americans?" Ouch.

However, one arena where Pepsi can enjoy equal footing with Coke is on the charts. Shares of both beverage companies have recently broken below long-term support -- in the 40-to-42 region for KO, and in the 50 neighborhood for PEP. For these perennially warring soda stocks, it looks like recessionary pressures are the great equalizer.

In fact, the outlier here is none other than McDonald's. Despite the Dow's bleak performance in 2009, shares of the burger baron are still holding steady atop long-term support from their 40-month moving average.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

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Last updated: March 20, 2010: 03:45 AM

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