Thoughts on McDonald's

Tuesday, October 20, 2009

McDonald's proved to be, once again, one of the very few recession resistant stocks. McDonald's is a world-class company dominating the $157 billion fast food industry. Operating over 32,000 restaurants in 118 countries, McDonald's saw 2008 total sales of $70.7 billion, a 10% increase over 2007.

The recent moves in menu selections have proven successful with consumers enjoying the low-cost, healthier alternatives. The adoption of high-end, high margin coffee drinks was a brilliant move. McDonald's will produce the same level of consistency, as it does in every area, that Starbuck's prides itself on while charging a lower price. This should prove highly profitable and detrimental to the Starbucks empire.

McDonald's stock (MCD) boasts a 41% 10-year return trouncing the S&P's 12% loss. Investors switching to MCD at the October 2007 peak in the market would have kept all their money safe with modest volatility while market investors are still down over 30% from their highs. This is to be expected as consumers switch to lower-cost outings during tough economic times.

Hindsight is always 20/20 but for fully-invested mutual fund manager, MCD was the place to ride out this bear market. Shares performed performed brilliantly for the investor focused on capital preservation even offering a 3.5% yield for some cash flow on the side. This company and stock are firing on all cylinders and I would expect more of the same.

I must say I'm getting excited to see a sign saying 1 trillion served!


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