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Taco Bell throws down, takes on McDonald's

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Lori Shepler/Reuters/File

(Read caption) The CEO of Taco Bell, Greg Creed, poses at the company's corporate headquarters in Irvine, Calif. in this file photo. Taco Bell is introducing a new fresh menu and a Dorito shell in an effort to be more competitive in the fast food market. Picture taken January 17, 2012.

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McDonalds ($MCD) is coming off one of the most amazing runs in terms of innovation, profitability, stock price performance and growth in the company's history.  They are the envy of the entire restaurant sector and one chain is looking to step to the plate.  USAToday has a feature on Taco Bell indicating that the also-ran chain may have been watching $MCD and taking notes.

Taco Bell has been the weak link in the YUM Brands ($YUM) empire for a decade now, competing (not well) with sister brands KFC and Pizza Hut for attention and affection.  Sales slumped in 2011, prior to that there was the e.coli outbreak, the accusations about how only 35% of the meat is actual meat and on and on.

But this year the brand is going on offense.  They're launching a Chipotle-competing fresh menu called Cantina Bell along with a new product that will probably take the country by storm - a taco in a Doritos-flavored shell produced in conjunction with Frito-Lay.  In test test markets, the Doritos Loco Taco is selling like, well, Doritos.  They're also ready to re-attack the breakfast daypart, their fourth attempt.

I bring this up because I don't believe that Taco Bell momentum is being priced into the 2012, 2013 base case for YUM Brands.  I have no position in YUM just yet because it simply will not pull back for even 30 seconds - the company is crushing it overseas with or without a recovery of the domestic T-Bell business (which could be the icing on the cake for a true homerun).

To get up to speed on what the Taco Bell brand is up to, run, don't walk, to the profile in USAToday.

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