Call Me, Shia!
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Almost two years ago Shia LaBoeuf appeared on David Letterman to tout "Wall Street:Money Never Sleeps" and in that interview he told about training as a trader for his preparation to play his character. He left Dave dumbfounded when he said that he took $20,000 of his own money and traded it up to $48,9000 in just a few months. Then Dave asked him well, what would you advise buying now and Shia said, "McDonald's." Now Dave was really dumbfounded and he replied, "Really, McDonald's?" and Shia once again reiterated, indeed, yes , McDonald's. Since that September 2010 appearance to the end of 2011, it seems that Shia is even a better trader than we give him credit. Maybe he should quit his day job acting.
For the first time in my life I regret not taking financial advice from a twenty-something actor.
On Sept. 24, 2010, the day of the interview, McDonald's (NYSE: MCD) closed at 75.10 and had run up to a high of $101.56 in mid-January 2012. Kudos, Shia! And though it is now in the low 90's since the early May overall market meltdown it still provides over a 3% yield and goes ex-dividend soon.
Why am I lovin' it?
Did you really expect to read a piece on McDonald's without seeing that at least once? Despite the softer April same store sales and a presence in some of the less financially stable European countries, obviously it is a stock to hold when the market is falling apart as it was last year. Every year Greece starts its shenanigans in the spring and then McDonald's shines (just like their bathrooms, a traveler's godsend).
We all know of the overwhelming global obesity epidemic and that this chain has made inroads on attracting people with lighter fare and healthifying the kids' meals. But what really has me thinking about buying me some McDonald's (and not just the McCafe Mocha Frappe I crave when I'm feeling a little low on life) is what I learned from my daughter. She just spent a semester abroad in Paris and walked past McDonald's every day to her classes. Most days the windows were steamed up from all the people inside. She said it was inevitably packed..the French love the American hamburger. If the French, the arbiters of taste, love it, why wouldn't you? She also said every homesick student abroad she knew just had to have McDonald's just about every other day.
The cynic in me says you should McDouble down on MCD and the diet drug biotechs to really play on the obesity epidemic. Cynicism aside, as a global brand there is only Apple that comes close. McDonald's is practically a cradle-to-grave investment. You buy the stock to interest your children but with the dividend reinvestment you can hold it to your grave. Just don't go to your grave earlier than necessary by overindulging in their wares to support your stock position. I wouldn't be surprised if someday they make a McFormula for infants. Seriously, why haven't they?
I can't think of another food or restaurant company that takes new product innovation and execution more seriously. Where Ford started the industrial revolution by using the assembly line to standardize and improve efficiency, McDonald's has done the same by standardizing the preparation of each food item and then going one step further by tweaking certain items to satisfy international preferences in their own countries. My daughter reported the McBaguette actually is doing quite well.
The summer driving season is starting soon as well and although gas prices have come down and oil is even lower today where else can you go for a fast, cheap meal in a dependably clean restaurant and get right back on the highway in minutes? Some of this is so obvious but it bears being said.
I do think this can be a long term core position in any portfolio, especially when ag commodities go lower. I would love to buy it in the eighties and in a market slump it might happen, but that yield will still keep you warm at night. Me, I think you can buy this with both hands just like you would holding a Big Mac. As to its competition I do see YUM! (NYSE: YUM)with its market cap of 32.4 billion and 22 PE continuing to do well in China but Wendy's (NASDAQ: WEN) with a market cap of 1.8 bil and 87 PE will probably never overtake the juggernaut that is McDonald's having a market cap of 93.1 billion and almost double the yield of either. I thought about some wordplay with juggernaut and nugget but I will spare you, dear reader.
Another very encouraging note for the long term holder is this week's reporting from the financial press that McDonald's is plannning to sell a bond offering to finance the hiring of some 70,000 workers to expand their showing in China. If they plan to offer the Chicken McBites that they had for a limited time this spring I think this is a slam dunk. Considering how much the Chinese love YUM!s Kentucky Fried Chicken certainly MCD has a shot. If the stock trades lower on the bond offering this is a gift. The continuing upside over the years is well, dare I say it, tasty.
At around 16 PE or so maybe there are other defensive names that are cheaper, I mean there are, BUT like some of the low end retail names doing well out there these last few years this is a triple play on a stretched consumer, international growth, especially Asia and a fortress brand name recognition.
A final shout out to Shia. I loved your acting in Holes and while you couldn't pay me to see Transformers, not your fault, I think you are very talented. But what I want to know is what are you buying right now, my man? Call me, Shia!
I have not had nor do I have a position in McDonald's or any other restaurant stocks. I may initiate a position but not until I see how the market shakes out after Memorial Day. The only position I take in McDonald's right now is head bowed reverently over a double cheesburger, no mustard, no ketchup, and fries.
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