McDonald's is a Staple
As millions of people become more impoverished as a direct result of government bungling and corporate banking maleficence, the one staple that is holding up better than anything seems to be Macdonald's Corporation. People need to eat and this is the quintessential low cost food provider. It has held up better than XLP - a consumer staples ETF - and even pays a 3.5% dividend.
The one year chart vs. S&P as well as XLP.
Six month:
3 month chart:
Global sales up 7.1% in January. The stock price has shown some recent weakness.
As far as I can tell, they don't have any financial exposure. No off balance sheet derivatives or CDO's. No financing arm to subsidize sales of Big Macs. Their biggest risk was fought a few years back against the ethical treatment of chickens and cattle that end up as feed stock to Mcdonald's production line. With a severe economic recession, the risks from the humane treatment of animals and environmental concerns are way down the list for most people. The thesis here is straight forward - cheap fast food.
I think MCD has room to move up from its current price of $57.
posted by Des @ 2/11/2009 11:24:00 AM
2 Comments:
I like the MCD thesis and the yield gives it some cushion. I guess the big question is what do we sell? I would have liked to sell Lulu last Dec at $13 IF we could have come to a concensus. After the holiday season, the stores seem emptier with the deeper recession in Cdn stores, so I don't expect a good quarter. Of the others I would pick SLB; I thnk DE and GS may still have some merit. if you believe in MCD due to a prolonged recession then SLB will stay low due to lower oil prices. I suppose we could sell both Lulu and SLB to fund the purchase of MCD. Thoughts?
Yes i agree with selling Lulu and SLB. This doesn't seem to be a garden variety recession. I would look to sell GS also on any positive news of recapitalizations by the Obama team. I keep waiting for some bounce in the financials but the correct trade here was to be short. W.r.t DE, the food and agriculture thesis is still intact but with this market I don't see the stock price recovering until the overall market does. Lot's of time to buy back into SLB and DE. MCD is my hunkering down play although I'm about twelve months too late!
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