Stay defensive with iconic American brands

With their global growth potential, McDonald's and Starbucks are strong positions for a volatile market.

By TheStockAdvisors Oct 7, 2011 9:32AM
By Glenn Rogers, Internet Wealth Builder

The markets have been crazy, so we need to stay defensive. In this environment, I want to recommend two iconic brands.

McDonalds (MCD) and Starbucks (SBUX) both offer the broad global footprints that come with geographic diversification.

In the event that Europe does melt down, both companies have opportunities for accelerating growth in China and India. Let's take a quick look at them individually.

McDonalds is the largest fast-food franchise in the world, with more than 33,000 stores and 400,000 employees.

Incredibly, 80% of the properties are still owned and operated by individuals. The company has revenue of more than $24 billion and more than $5 billion in profits, and they are still growing.

August marked the company's 100th consecutive month of positive global comparative sales growth, and the stock pays a dividend of nearly 3%.

I think the pullback gives investors a chance to get in at a reasonable price and enjoy a decent yield with consistent growth and a product mix that is perfect for lean economic times.

At 15.4 times forward earnings, the shares don't look expensive, and given the uncertainties that surround us, peace of mind is worth a great deal. Buy with a target of $98. The shares closed Thursday at $88.29.

The headline story on Starbucks is that since the founder, Howard Schultz, has returned to run the company, the business has improved dramatically.

The other headline is that Schultz recently announced aggressive expansion plans in both China and India, with more than 1,000 new stores in China alone.

Also under way are major expansions in South Korea, where the company plans to open several hundred locations.

Starbucks has also revived its Seattle's Best brand and partnered with Burger King and Subway, which will give it access to 30,000 additional locations.

I have also been impressed by the company's reaction to rising coffee prices. Some competitors tried to cut prices at just the wrong time, whereas Starbucks maintained prices and worked on frequent-buyer reward programs.

At 21.5 times forward earnings, Starbucks may not seem cheap, but the growth that lies in front of it more than justifies the current price. Buy with a target of $46.

People have to eat. Even in tough times, most people will cut back on a lot before they give up their caffeine, and parents will still need an inexpensive place to take their kids.

Both these iconic American brands have become truly international and will continue to thrive over the long haul while offering defensive positions during times of market turbulence.

TheStockAdvisors.com is a free website that highlights stock recommendations and market commentary from leading financial newsletter advisers.
Tags: MCD
10Comments
Oct 7, 2011 1:48PM
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great, just what we need, more starbucks and mcdonalds in every corner. 

Oct 7, 2011 1:32PM
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Starbucks in MacDonalds and Subway stores? I wonder if we'll see McDonalds and Subways in Starbuck Stores?

Hmmmmm.... Very Interesting. Just a thought.

Oct 7, 2011 3:31PM
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This is almost entertaining, like a commercial. I now want to enjoy a Double Quarter Pounder and my triple grande vanilla non-fat extra hot no foam latte while I E-trade myself out of debt or save my 401k.

 

No, this is wrong, anyone pushing stock advice in this economy is just guilty of fraud. "Pump and dump" heard of it? It happens all over and is essentially the foundation of our stock market to date. Sure these stocks are "stable" compared to the majority of others. I however am not convinced of this unless I am TheStockAdvisors.com who are just regurgitating the information they get from the same Wall Street criminals that swindled our nation for billions while they made profits and gave bonus' and citizens lost entire life savings. In fact these corporations are essentially the Wal-Marts of the food industry so it makes sense that their net worth is high and stocks are stable. They go out of their way to ensure that shareholders are more taken care of than their own employees.

 

How do I know this? I worked for starbucks for 7 years and loved every moment up until the end where I was continuously looked for for promotion despite having a proven track record as a performer by candidates that had no proir management experience or even retail/food service experience (Refer to the article today on msn.com about favoritism in the work place). My last manager, chose to harass me out of my job and since psychological torment is not a crime. My complaints to HR who neglected to acknowledge this only gave him more incentive to continue to target me for reasons I could only speculate on mostly due to jealously that I out performed him in every aspect of the job, had actual respect from other employees and customers, this person is borderline psychotic in my eyes. Do research on psychological harassment and find that it is extremely debilitating, I should have claimed workers compensation for the environment he created. Back to my point those at the unemployment office the worker went through my work history and experience and literally exclaimed, "you were under paid, not by a little, a lot." She went on to say with the duties that I was entrusted to complete on even just a per shift basis I should have been compensated with twice what I was earning compared to with companies and other roles in the industry.

 

The moral of my story, buy local, 70 cent of every dollar spent locally goes back to the community compared to less than 50 cent per when you shop/buy from corporations like these. The market is not stable you are better off putting money in a jar, under the mattress, or just in savings and yes there are plenty of local places to get your coffee and to eat your hamburgers.

Oct 7, 2011 1:53PM
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Here's a way to be defensive:  Don't buy these stocks.
Oct 7, 2011 2:58PM
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What's the defensive strategy for unemployed or underemployed workers?  I guess if you own Mickey D's or Starbees, you want the underemployed to take their second and third jobs at these companies, so you can keep wages low and squeeze profits out of the the hired help... rock on wall street, I'll be the one working three jobs to keep ya in your paper profits.  On the other hand, if you get the unemployed to work there for 24 hrs a week, you can stop the unemployment benefits while they're knocking down a tidy $180, before taxes, and not issue benefits...  Then they can put some skin in the game.... and blood, and sweat, and tears..... I have no answers.... and I'm thankful to be working and struggling to make ends meet, but I still giggle when i read "defensive strategies of investing"..... You know, Christ would say invest in your fellow man (person), though that's just an opinion I suppose.  (And yes, he might also say those who work will eat)... Perhaps even a discounted meal at Mickey D's?  I do still like the idea of spending a dollar for my lunch, though that does represent 5 Ramen meals.
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Why Mickey D's or Starbucks? ? If taste counts at all, it's Burger King & Dunkin' Donuts, dollar wise also! ! Plu,s Pespi over Coke! !
Oct 7, 2011 2:37PM
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we really have no room to talk when regarding a "melt down". what a smug way to think of ourselves
Oct 7, 2011 4:30PM
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I get what Ameribob is saying in general, but Starbuck's actually offers benefits to all workers putting in 12 hours a week or more and pays above minimum wage.  
Oct 7, 2011 2:59PM
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I'm sure both of these companies enjoyed the rise in their stocks afforded by this article, haha.


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