With shares of McDonald’s (NYSE:MCD) trading at around $87.06, is the company an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Anyone who has owned McDonald’s over the past year is well aware that the stock has been performing poorly. With its first sales decline since 2003 and increased competition around the globe, some investors might be feeling a little queasy about future prospects. Well, it turns out that while several of McDonald’s traditional menu items may have the potential to make one feel queasy, that shouldn’t be the case for the company’s stock.
If you look at McDonald’s through history, every single dip has been a buying opportunity. If you happened to be one of the few people who bought at the IPO, then you’re up over 40,000 percent right now. Not bad, huh? Many people will look at this and say, “Shucks! I missed it. It’s too late!” Those people would be incorrect. If you look at any top-tier defensive stock, they have all proven to be a great name to own if you have a long-term mindset.
While you certainly won’t make 40,000 percent owning MCD now, the future is still bright. This is a creative company that always finds ways to lure in new customers. In recent years, McDonald’s has added healthier items as well as new Dollar Menu items. The Happy Meals, toys, and playgrounds are also always big draws for kids.
McDonald’s has a Trailing P/E of 16.39, a Forward P/E of 15.03, and a 3.50 percent yield. By comparison, Burger King (NYSE:BKW) has a Trailing P/E of 63.61, a Forward P/E of 24.10, and a 0.96 percent yield. Burger King has been receiving a lot of credit for its creativity, but based on those numbers, which stock would you feel more comfortable owning?
Another important fact is that MCD was one of the safest stocks to own when the market crashed in 2008. If the solution to the fiscal cliff doesn’t work out, then this will likely be a good place to hide.