3 reasons to eat up McDonald's shares

After a strong earnings report and significant share appreciation in the last year, MCD shareholders are "lovin' it"

By InvestorPlace May 3, 2010 8:37AM

mcdonald's mcd stockWhen you think of the quintessential American restaurant, fast-food giant McDonald's (MCD) is first in line. But Mickey D’s much more than just an iconic U.S. burger joint  -- it has also proved to be a recession buster for many investors’ portfolios. Over the past five years, the stock has shot up nearly 138%, and so far this year there's been no sign the stock is slowing down. The restaurant stock now trades at 52-week highs.

Certainly, value-conscious consumers have demonstrated a taste for McDonald's during the recession … but many investors are wondering if the ride over now that the economy is improving. After all, a focus on healthier eating has some pushing for McDonald's to fire longtime mascot Ronald McDonald.

Well, if you’re thinking of cashing out your shares of the Golden Arches -- think again. Here are three reasons to buy McDonald’s right now:

Sales and profit numbers still impress: On April 21, McDonald's first quarter earnings really impressed the stock market with a profit of $1.09 billion, or $1 a share. That number was up substantially from the $979.5 million, or 87 cents per share earned in the same quarter a year ago. Total revenue, including receipts from its franchised restaurants, rose 10% to $5.61 billion. Both bottom-line and top-line numbers in this earnings report easily bested consensus estimates calling for earnings per share of 96 cents on revenue of $5.53 billion. The company has boosted its earnings seven of the past eight years, and the company now has seen 83 consecutive months of strong same-store sales.

Value Meal valuations: Not only are McDonald's Value Meals a good deal, the company's shares also are a good value. Shares currently trade at 16.6 times earnings as the shares hit new 52-week highs. That relatively low P/E ratio is right in line with rival Burger King Holdings (BKC), which trades at just under 14 times earnings.

Low risk with a good dividend: But what happens if the economy turns south and the stock market hits another rough patch? Well if you want to take shelter from another downturn, look no further than the Golden Arches. The stock has a high dividend yield and it is one of the top 10 dividend stocks in the Dow. That means, even if shares see short-term trouble, you can still bank on a payday. And considering the stock actually gained ground across 2008 and 2009 while the Dow Jones finished down 22% from Jan. 1 2008 to Jan. 1 2010, you can be sure that you won't see as steep a decline in share prices.

Click here to see even more reasons to buy MCD.

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