McDonalds (MCD)

There was a lot of negativity around it two years ago and since then management have done a magnificent job and it has come back. All day breakfast has spurred traffic. They are tacking on mobile apps and home delivery. They brought back the $1 any drink size. It is a bit of a safety stock. Investors hide in stocks like this. You are still going to buy your Big Mac for lunch whether the markets are up or down. He is neutral on it at these prices.

She missed the boat on this. A few years ago, you had Panera, Chipotle, etc. and nobody wanted to eat junk food anymore. Then there was a big consumer shift. McDonald’s really struggled with their same-store sales. They brought on a new CEO and redid the menu, had healthier options, fancy brands and had promotions on drinks. Now they are back in business. They’ve been putting in good growth numbers in the US.

This has a period of seasonal strength that goes through until approximately mid-July. Chart shows there was a nice upward run, and during the last week or so, the stock sold off on news. If you are a trader, you are probably taking some money off the table. It has another period of seasonal strength from around October to Nov/Dec. Technicals are starting to roll over and the stock is starting to underperform. Momentum indicators are starting to turn down.

(A Top Pick July 19/16. Up 25.65%.) This has had a tremendous run. This has been a special story, but he considers what is going on in the backdrop of the restaurant group, has been a little sloppy, and would be less likely to Buy this today.

(A Top Pick April 21/16. Up 25.71%.) For him, this was a value play. With all of the negative press it had, the stock didn’t move much last year. He would be very comfortable buying back in if it got a little cheaper.

What is neat about this story is that it is more defensive, but they are going through a technological change function right now, including moving into delivery. Valuation is a little rich, but well justified by the fundamental trends. Dividend yield of 2.5%. (Analysts’ price target is $155.)

This is going to be an under performer. It has been a great performer in the last few years, but now you have a quick serve restaurant trading like a tech stock at 25X earnings. They are still exposed to some of the cyclical headwinds such as a sour economy, rising wage prices, inflationary pressures on commodities.

It is one of the few fast food companies that continue to do well. They are growing their bottom line earnings pretty quickly for what they are doing. This management knows how to adapt to the changing demographics. It is one of the few that will continue to do well and it is global.

Sell McDonald’s (MCD-N) and buy Restaurant Brands (QSR-T)? This is not a bad idea as Restaurant Brands has more of a growth runway. McDonald’s is more of a mature business with penetration pretty much everywhere.

This is up about 22% in the last 12 months, because they are trying to take advantage of technology to start to manage stores. Where they are now in bricks and mortar, they are going to get a huge amount of store growth. They are trying to maximize their ability to keep costs down. That is never the greatest idea to run a business. This is not expanding your revenues, it’s just keeping costs down.

This has done an amazing job morphing its business. Coffee is the new growth area, which is very high margin. They have gotten good locations and understand the real estate game. If there were a big pull back, this is the kind of thing he would look at.

It has implemented the ‘Internet of Things’. You can order without people. They are getting great margins. He would be a buyer on a pullback. It is at a record high on a 20 year chart.

Sold his holdings, but still likes it and is hoping to get back in. The company needed to reinvent itself, and did that by providing a 24-hour a day McDonald’s. The new CEO has done some great things by refranchising stores with a focus on technology. Trading at around 23X PE, which is not expensive given the good things that are going on. A low beta stock, and you need some of those in a portfolio. In a bad market, these are the names that hold up. Dividend yield of 2.6%.

A perfectly good long term holding. It had a recent pop and if you had a lot of profits she would recommend taking some off the table. You expect it to grow in the US with GDP. Internationally there is still room for them to grow further. She thinks they are doing everything right. but it is a rich stock right now.

(A Top Pick Jan 29/16. Up 8%.) The idea was that this was trading at such low levels. He started buying at about $100. The company needed to go through a transformation, and he had confidence they were going to do that. Sold his holdings. A lot of the easy money has been made and it is trading at fair value now.