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5 Reasons to Buy McDonald’s MCD stock


Fast-food giant McDonald’s (MCD) is without doubt the quintessential American fast-food restaurant — but McDonald’s is also a global name with strong global sales. The company makes products enjoyed around the world, and it offers those products at a price point accessible to nearly everyone. 

Certainly, fast-food consumers have demonstrated a taste for McDonald’s, investors also have a taste for MCD stock.  Over the past five years the stock has shot up nearly 138%, and so far this year there’s been no signs the stock is slowing down.  In 2010 MCD shares are up 12.7%, and the stock now trades at 52-week highs. 

But can McDonald’s continue pleasing investor palates, and more importantly, are MCD shares a buy here?  The short answer is yes, and here are five reasons why.

McDonald’s earnings impress: On April 21, McDonald’s first-quarter earnings really impressed the stock market with a profit of $1.09 billion, or $1 a share.  That number was up substantially from the $979.5 million, or 87 cents per share earned in the same quarter a year ago.  Total revenue for MCD stock, including receipts from its franchised restaurants, rose 10% to $5.61 billion.  Both bottom- and top-line numbers in this MCD earnings report easily bested consensus estimates calling for earnings per share of 96 cents on revenue of $5.53 billion.  

MCD global sales are strong:  The biggest gains in the stellar quarter came from a hefty increase in global same-store sales, which jumped 4.2%.  The strong international showing included a gain of 5.2% in Europe, and a 5.7% gain in the Asia/Middle East/Africa region.  Even U.S. same-store sales, a number that’s struggled to keep pace with international growth, were higher in Q1.  Part of the reason why McDonald’s has such strong appeal overseas is because the company understands that its continued success depends on adaptation to local tastes.  The company isn’t averse to changing menu offerings to cater to provincial tastes, and as such McDonald’s has managed to populate the globe with its Golden Arches.

McDonald’s sales are more than just burgers: Speaking of those changing menu offerings, part of what drove the company’s earnings higher in Q1 was increased revenue in its McCafe premium coffee line-up.  McDonald’s has taken aim on premium coffee giant Starbucks (SBUX) with their espresso drinks, and so far the battle has paid off for Mickey D’s. McDonald’s also plans on adding smoothie drinks to its menu in the hopes of attracting customers during low-traffic periods of the restaurant day. Historically, new product introductions have been a very strong driver of sales.

Value Meal valuations.  Not only are McDonald’s Value Meals a good deal, the company’s shares also are a good value.  MCD shares currently trade at 16.6 times earning as the shares hit new 52-week highs.  That relatively low P/E ratio is right in line with rival Burger King Holdings (BKC) that trades at just under 14 times earnings, and Yum Brands (YUM), which trades at about 19 times earnings. 

MCD stock serves profits in good times and bad.  The economy is improving, and consumers are starting to spend money again.  But what happens if the economy turns south and we enter double-dip recession territory?  If that happens, you’ll want to own a company that’s proven it can deliver solid earnings in both good times and bad.  McDonald’s has boosted its earnings seven of the last eight years, and the company now has seen 83 consecutive months of strong same-store sales.  So if consistency, and shelter from another economic downturn, is what you want, look no further than MCD. Besides, the MCD stock also has a high dividend yield and McDonald’s is one of the top 10 dividend stocks in the Dow. That means even if shares see short-term trouble, you can still bank on a payday.

As you can see, there are plenty of great reasons to order up McDonald’s shares. So if your portfolio craves fast-food profits, you can’t go wrong at the Golden Arches.

As of this writing, Jim Woods did not own a position in McDonald’s.

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