Four Reasons to Own McDonald’s Now
Posted
Apr 22 2009, 11:21 AM
by
Louis Navellier
Rating:
Can you imagine being in the McDonald’s Corp (MCD) corporate board room when some brave manager raised his hand and said, “Let's reposition our coffee to take direct aim at Starbucks”?
Say what? You want me to believe that we can take our overheated poor excuse for a caffeinated beverage and convince people to buy ours instead of the gourmet blend down the street?
The brainchild of that idea had to be laughed out of the room. But as you can see with my 3 Hot E-Business Stocks to Buy Now, businesses that embrace out-of-the-box thinking have the potential for huge rewards.
It is a fascinating process, and in the case of McDonald’s and their effort to legitimize their offee, shareholders should be thrilled that the CEO and its board signed off on the move. The results have been stellar. The repositioning of McDonald's coffee could not have come at a better time. Doing so put the company in a prime position to not only survive what was to come in the conomy and the financial market, but allowed MCD to thrive.
It is truly a remarkable story. MCD is one of the few stocks to have gained in value since the recession began in the fourth quarter of 2007. Though the stock is down in 2009, the losses have been minimal and provide a cheaper entry point for those interested in owning MCD long term.
Here are four reasons why you should buy MCD right now:
Reason #1 – MCD Is a Defensive Stock
We are in a global recession that only recently showed signs of bottoming. During this time, consumers have reduced spending by historical amounts. Discretionary spending is the first thing to go in times like these.
But you still have to eat, no matter what is transpiring in the economy. Companies in the dining industry, especially the quick-service dining industry, are considered defensive stocks, as business is likely to remain steady, even in the face of a slowing or declining economy.
McDonald’s fits that description perfectly. With a 3.6% dividend yield, investors in MCD can earn income with a low degree of risk for losing principal value.
Reason #2 – McDonald's Appeals to Rushed Parents Who Are Concerned About Costs
While the overall dining industry has struggled during this deep recession as consumers choose to eat more at home, McDonald's has fared better. Its value menu plays very well with the budget-conscious consumer.
And now Happy Meals for kids include not only toys, but have wholesome eating choices as well, pleasing nutritionally-concerned parents.
The effort here is paying big dividends with families who are still looking for convenience and cheap food. A family of four can enjoy a decent dinner for less than $15. No wonder MCD is seeing a resurgence in sales. With the economy likely to struggle for the remainder of the year, the trend is very positive for MCD going forward.
Reason #3 – MCD Has Management Genius
Some would say MCD was crazy for taking on Starbucks, yet in hindsight, that strategy is proving to be brilliant. With perfect timing, the company’s premium coffee at a price that is well below the competition translates into big sales. It is a perfect strategy for consumers that are feeling the pain of a shrinking economy.
We have seen what great management can do for companies like Apple Computer (AAPL). Given the success of this coffee move, I would put MCD’s management up against the best in the world. They and the employees executing the strategy are the true stars at MCD and a great reason to own the stock.
Reason #4 – MCD is a Leader in its Space
Some of the best investors in the world have had great success by owning the leaders in a particular industry. Why take a risk on a lesser player when the best can squeeze the competition to a pulp? In the case of MCD, would you rather own the golden arches or an imitator? I think the answer is obvious.
Bet on the best, and the market will do the rest. This axiom is particularly true during a bear market. This is not the time to speculate on a change in competitive position. It is not likely that a second tier company can perform in a way to take over the top spot. Such moves just don't happen during a crisis. In fact, the best in any industry usually solidify the top position during economic crisis, with innovation and strength to ride out the storm. That is certainly the case with MCD and reason enough to own the stock.
For more on McDonalds, plus my proprietary rating for MCD, see Why You Must Own McDonald's Now.
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At the time of publication, Louis Navellier held positions in McDonald’s and Apple.
