Why McDonald’s Is Brilliant

By

corporate earningsEvery year it seems we get some new investment strategy that assures us it is the “secret” to getting rich. Over a decade ago, it was the Internet and dot-com hype. Recently, it’s social media, with Facebook and LinkedIn Corporation (NYSE/LNKD). For a long-term investment, the key is what management can do to constantly innovate and grow.

Many people wouldn’t associate blue-chips with being highly innovative, but they’d be wrong. They might say that high-tech blue-chips like Apple Inc. (NASDAQ/AAPL) can create new products with technology, driving their corporate earnings. I’m here to say that old-fashioned blue-chips like McDonald’s Corporation (NYSE/MCD) can also have an innovative investment strategy.

 In 2003, McDonald’s stock was trading near $13.00; today, it’s approximately at $100.00 with a dividend yield of 2.78%. The investment strategy of McDonald’s has been highly successful in driving corporate earnings year after year, a true definition of what blue-chips should be doing.

 How are they innovative? A recent example is word from the company that, in France, McDonald’s is coming out with a baguette-based burger, called the “McBaguette.” And so McDonald’s continues its investment strategy of trying new, innovative ideas by slightly tweaking its model to the local market. It’s certainly not easy, but slight changes to a solid formula are what drive corporate earnings. In 14 European countries alone, McDonald’s has 20 different menus that have been tweaked slightly to better fit in with the local market.

 This investment strategy not only adds a local flavor, but it also drives corporate earnings and margins, since these products are being charged at a slight premium to McDonald’s regular menu. Blue-chips that, over a long period of time, have a consistent investment strategy of reinventing themselves are the types of companies I want to invest in for the long term.

 The valuation of blue-chips and rising stars is a difficult task for any analyst. Different levels of corporate earnings, varied plans regarding investment strategy, and growth rates all make it tough to compare companies. An interesting comparison is the high-flyer Facebook against McDonald’s. Both are being valued around the same level, with a market capitalization of approximately $100 billion each. McDonald’s is generating almost $10.0 billion in net income compared to Facebook’s roughly estimated $1.0 billion. Yes, Facebook is growing very fast, but a growth rate for McDonald’s of approximately 10% and a dividend yield just under three percent is very solid.

 While no one can predict the future, I would be willing to bet that McDonald’s will be around for a much longer period of time than Facebook. Investing in blue-chips is all about longevity, which can only come from innovative ways to grow corporate earnings. A solid, long-term investment strategy needs to be in place for share prices to continue to go up. Look for innovative ideas from management when investing in blue-chips.

Retire on one Hot Stock

Presenting Our Top Stock Pick for 2015!

It is one of the leading companies in its industry. With quarterly revenue of $800 million and growing this company is generating over $300 million every three months in free cash flow!

"A Golden Opportunity for Stock Market Investors" is yours FREE when you opt-in to get our daily e-letter Profit Confidential. With Profit Confidential you are receiving the opinions and commentaries of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate, and other investments so we can tell you what we believe today's financial news will mean for you tomorrow!

Combined, we have over 100 years' experience in analyzing various investment markets. Our analysts include MBAs, BAs, B.Comms, P.Engs, MAs, LLBs...and most importantly, years of experience investing and managing our own money successfully!

To opt-in to our FREE daily e-letter Profit Confidential and to get your FREE report, "A Golden Opportunity for Stock Market Investors," enter your e-mail address in the box below. You can unsubscribe at any time.

We hate spam as much as you do. Check out our Privacy Policy.

About the Author | Browse Sasha's Articles

Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what... Read Full Bio »

Related Articles

Poll

Would you vote for Donald Trump if he was the Republican Nominee?

View Results

Loading ... Loading ...
×
54.83.107.145
From: Michael Lombardi, MBA
Subject: Golden Opportunity for Stock Market Investors

Read this message