McDonalds (MCD)

There was a lot of cash on the sidelines last year, as investors weren’t convinced the company could turn things around. But after the results we have seen recently, that conviction has started to diffuse into the market. Thinks there is going to be a new round of capital coming in from new investors who feel better about the story. They are still early in this turnaround. There is probably 10%-15% upside at the most, and then you want to get out. Dividend yield of about 3%.

A global consumer name. A giant ship that is slowly getting turned around and going in the right direction. Recently reported same-store sales up 4% in the last quarter, the strongest quarter since 2012. Once that starts to happen, it generally goes on for many quarters. They are trying lots of creative things in their stores. The breakfast is doing very well, and they can roll that out internationally. Culturally it is becoming much more flexible. Food inflation is a big benefit to them. Increased minimum wage in 20 states is good for their customer base. Dividend has grown about 9% a year over the last 5 years. Bought back 5% of their stock last year and are highly unlikely to be hurt by weakness in China and emerging markets. Dividend yield of 3%.

Concerned about their debt levels and their plans to return money to shareholders through buybacks using debt, which he generally sees as unfavourable. Their plans and progress going forward into the new MCAFE standalone stores and new menu items is positive, and there will be better growth from that. A nice dividend of 3%+.

(A Top Pick Jan 28/14. Up 33.01%.) He still owns and still likes it, but is a little apprehensive about the build-up in debt and returning it to shareholders. It’s one of the stocks that is on his radar screen. They are doing a lot of buybacks and increasing their dividends, but have been downgraded. Returning a lot of money to shareholders, which he agrees with as long as it is excess capital.

This connects with the basic unhappiness in the world today. Unhappy people eat and they love junk food. This company has languished. It is the monster of junk food companies. It suddenly got fired up when they came up with the idea of having higher junk. Have also performed the miracle of understanding the importance of the “all day” breakfast. He is hoping for a bit of a pullback in order to buy more.

3.4% dividend yield. They are growing earnings at 8% compounded over time. It has a huge global franchise. It has some natural hedges on the currency side. They are rightsizing the menu. They are going to solve their problems and grow again.

They struggled the last few years since users have gone to more fresh and healthy food. You are betting on their ability to make the transition. This is the not the first time they have turned the business around. The new CEO is rolling out new innovation. You can buy this and live with it in bad times. Good dividend, good valuation and they are executing a turnaround.

The story is improving. Their same store sales are actually improving except in the US. They are going to close more restaurants in the US than they are going to open. It has held up fairly strongly in the down turn. A good dividend yield and they buy back a lot of stock. They have real estate holdings also. He prefers SBUX-Q.

In this environment with a lot of volatility, he likes the 3.53%.dividend support. Thinks the new CEO is going to turn the business around. They say they are getting good traction in China again, and in spite of all the currency headwinds, it is a very strong dynamic franchise. Thinks the company will be much more aggressive regarding its balance sheet and increasing its dividend. Will have a lot more capital discipline in terms of how many stores they own, versus how many stores they franchise.

This has been beaten up and has low PE with a low beta. You are getting paid while you wait and not getting a name that is overly volatile. He is comfortable betting on their turnaround. They have done it before and he feels they will do it again.

This is the 1^st quarter where they actually grew revenues in quite a while. This is a very strong franchise. All of the numbers would screen well on pretty much anything she looked at, other than the ability to grow. In this interest rate environment, you want some of that growth potential, and she just doesn’t see it. This is something that she just doesn’t want to participate in.

(A Top Pick Aug 11/14. Up 8.95%.) Everyone is worried about this company and their lack of healthy choices. Look at tobacco companies. Not everybody does everything healthy. He still likes this very much. Yielding about 3.5%, which is very attractive compared to a 10 year treasury bond.

This is really about the valuation story, and he is willing to be there for the recovery. There is lots of pessimism priced in. Their sales across the board have come down because they haven’t adapted to consumer preferences. So when you buy this, you are making the bet on are they going to make the changes necessary to adapt to what consumers/restaurant goers want today. He feels the answer is yes. They have done it before. Low volatility and a dividend yield of 3.55%.

Undergoing a major re-evaluation of their business. We think of it as a hamburger chain, but in fact Egg McMuffins outsells hamburgers. They are trying to re-establish themselves. Facing some very stiff competition. If he had been looking at this sector, he would have chosen a smaller chain.

Gives a huge dividend of about 3.6%. Have grown their dividend at about 10% a year for the last 10 years. Going through some struggles right now. He has seen this happen before. A very powerful franchise and is struggling with competitive pressure, currency pressures and menu pressures. Very, very strong balance sheet.