Should You Be Buying McDonald's In This Recession?
The Dynamic Wealth Report
January 28, 2009
Make Mine A Big Mac...
In these tough economic times everyone is cutting back on everything.
Dining out is one of the first areas to go. I should know, I’m cutting
back myself.
I was looking at my budget last month, and all I can say is the money
flowed freely. Freely from my pocket into the various stores and
restaurants I frequent. When my girlfriend Linda and I started adding up
our expenses, the number was staggering. I couldn’t believe how much
money we spent on entertainment, eating out, groceries, and food.
It appears we were singlehandedly supporting the restaurant industry.
I noticed right away, a significant cost was eating out. Despite
accounting for less than a third of our meals, the cost was more than
half the budget. Like many Americans, we’ve made a conscious decision to
cut back on our expenses. We’re going to reallocate a portion of the
dining out dollars to other budget items.
The real challenge will be how two "foodies" like us are going to cope
with the change.
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Now, I have it from a reliable source we’re not alone. According to the
Wall Street Journal, 2009 is supposed to be another down year for the
restaurant industry.
An interesting trend is starting to develop.
Many people aren’t just cutting back on how often they eat out. Many are
also downsizing what they will spend for a meal. Just look at the “quick
casual” restaurant. Restaurants like P.F Chang’s, TGI Friday’s, Chili’s,
were all big successes just a few years back. Now they’re getting
hammered by the economic downturn.
People are changing their eating habits.
And I don’t mean shifting to a high protein diet. People are looking for
deals when they eat out… and they’re finding them at fast food chains.
There are deals aplenty to be had at the traditional fast food places
like McDonald's, Burger King, and Wendy's. The fast food companies are
playing into the hands of these consumers. Many are introducing value
oriented dining.
As an example, McDonald's has a value menu (I’m sure you’ve seen it).
These are all items that can be had for a buck. It’s hard to argue when
you can feed yourself an entire meal for less than $4.
You can’t get an appetizer at a quick casual restaurant for that price.
Let’s look a little more closely at McDonald's (MCD). Monday the company
announced fourth quarter results. In one of the toughest economic
environments they reported some great numbers. Same store sales (a big
focus in the restaurant industry) are up more than 7%. All told the
company serves some 58 million customers a day. Amazing to think about.
But that’s not all.
While other chains are closing (think Bennigan’s) McDonald’s is growing.
This year the company will spend $2.1 billion building new locations and
remodeling existing stores.
The company still manages to post solid earnings numbers with more than
$980 million going to the bottom line. It’s down a bit from 2007, but
not dramatically.
Management’s even being smart about buying back shares and managing the
dividend. McDonald’s success shows in the stock price. They were one of
only two companies to end 2008 in positive territory.
Not bad, especially when you compare that to say… the financial
industry!
I think as the recession drags on McDonald’s will continue to
outperform. Consumers are going to trade down in every way they can. For
my money you can’t beat a Big Mac, and you can’t beat an investment in
McDonald’s stock. Take a look for yourself. You might gobble some up for
your own portfolio.
• Gold ($893 per oz.)
Gold continues to move in an up-trend. Concerns over currency
devaluation and economic turmoil are driving up demand. Gold is a
traditional safe haven investment in times of uncertainty.
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