Why McDonald's is the perfect stock for 2012

The restaurant chain, which saw shares hit a new 52-week high Thursday, has strategies for both good times and bad.

By Jonathan Berr Dec 22, 2011 4:38PM
Image: Family eating burgers (© Bananastock/Jupiterimages)McDonald's (MCD) is the ideal stock for investors worried about the prospects of a double-dip recession next year -- and for those who think the economic recovery will continue.

The world's largest restaurant chain appeals to the budget-conscious consumer through its dollar menu and its value meals. People with more money to spend are buying more expensive items such as coffee drinks and premium chicken sandwiches. This dual strategy is working like a charm for the Oak Brook, Ill. company.

November comparable sales rose an astounding 7.4% on a global basis, surpassing the 5% gain expected by analysts surveyed by Bloomberg. Strong demand from China and Japan pushed sales in Asia Pacific, Middle East and Africa up by 8%. U.S. sales rose 6.5%.

The interesting story, though, was Europe, which has gone from one financial disaster to another for the past year or so. Sales there jumped 6.5%, driven by strength in the U.K., France, Russia and Germany. Coincidentally, European officials today reported that consumer confidence in the eurozone had fallen for the sixth straight month. Of course, weakening economic conditions don't help McDonald's, but the company will prove as resilient as it's been throughout the Great Recession.

The allure of McDonald's inexpensive, tasty and not always nutritious fare is tough to resist.   Cash-strapped consumers, particularly single parents, don't have the time to cook meals for their families because they are too busy working. Wealthier consumers patronize the chain because its menu items appeal to children and it offers nutritious fare such as salads. Parents worried about kids consuming too many Happy Meals always have the option of saying "no."

McDonald's fulfills a basic human need to eat outside the home. Cabin fever strikes everyone at one time or another. Cash-strapped consumers don't have to feel as though they are missing out. For example, someone who buys a cappuccino may switch to less expensive regular coffee if their budgets are tight. Devotees of the Quarter Pounder with Cheese will trade down to the McDouble or other fare on the dollar menu.

This explains why Wall Street analysts remain bullish on the stock even though it reached a 52-week high Thursday. Their average one-year target for McDonald's is $103.48, about a 5% upside to where it currently trades. That estimate may prove to be conservative given McDonald's history of outperformance.

Jonathan Berr owns shares of McDonald's.

Tags: MCD
8Comments
Dec 23, 2011 2:34PM
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Dear Pocketprotector; your comment had little value....of course nobody is making me eat there-and I never would- that is not the point.  The point is this company is making money by exploiting the weak that apparently cannot make good decisions -  just like smokers.

How it does affect me is that obesity and unhealthy citizens in our country are the number one cause of increased health costs. Those health cost are passed down to everyone.

And to support, invest or consume any company's product that puts profit above morality is just a shame. Please I insist you go to one of their slaughterhouses and factories and watch your "food"  be created, abused, and modified.

Ignorance truly is bliss.

It has nothing to do with Tofu, just intelligence, common sense, pride and morality. Try it you may like it-and it does not come with 300 calories of secret sauce (Thousand Island Dressing mixed with Mayo)

Dec 23, 2011 10:03AM
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"Charlie08......I say we take a stand,  so what if the stock and McD's makes money.  Look at how they are making it, (and not only them)- they are 'Nutritional Terrorists'. "

No one is making you or anyone else eat there.   You sound like liberals everywhere--sensationalize the trivial.  So, eat tofu everyday if you want, leave other folks alone.
Dec 23, 2011 9:56AM
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McDonalds is a great company to invest in.  But, a healthier fast food restaurant is Subway.  Think about it.
Dec 22, 2011 8:02PM
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I say we take a stand,  so what if the stock and McD's makes money.  Look at how they are making it, (and not only them)- they are 'Nutritional Terrorists'. 

Their support of cruelty to animals is atrocious, in addition the product they put out should not be classified as food. They put their profit above your health.

My favorite commercials of theirs is the one with about 20 Super Models, all smiling, lean and fit are gulping down the Quadruple-Bypass-Burger with a bag of deep-fried artery killing fries and big ol' toxic soda.

Give me a break!

Make Good Choices!

Dec 22, 2011 6:38PM
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See the late Ray Kroc's autobiography, "Grinding it Out" and another with many pages on McDs, "Fast Food Nation"....a "green" McDs is the busiest eaterie in my home city, by far.  What other restaurant chain would have the chutzpah to introduce baguettes to the French in Paris?  A staple bread loaf for generations to the French!?  Kroc and Walt Disney met as young volunteer  ambulance driver trainees in 1917 but they never got to France as the US entered the war in Apr. 1917.  They were friends for decades. 
Dec 22, 2011 6:30PM
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Don't get me wrong, MCD is a very good company.

 

But... what was the perfect stock for 2011, and did anybody call that correctly on Dec 2010?

Dec 22, 2011 5:55PM
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REGARDING MCDONALDS -THERE ARE FAR BETTER DEALS AT OTHER FAST FOOD RESTRAUANTS . THEY HAVE SEVERLY DOWN SIZED THEIR PORTIONS SUCH THAT I NOW CALL THEIR BIG MAC A MINI MAC. I EXPECT THEIR SALES TO TURN DOWN .
Dec 22, 2011 5:52PM
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You're right about MCD, though a little expensive for the casual investor. It's not going anywhere but up in our lifetime. Maybe the best stock for the long haul.Open-mouthed
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