McDonald’s Corporation Vs. Starbucks Corporation — Which Is the Better Buy? (MCD SBUX)

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There’s no doubt that when it comes to fast-food stocks, McDonald’s Corporation (NYSE:MCD) and Starbucks Corporation (NASDAQ:SBUX) are both top quality investments. But if you’re looking to add only one or the other to your portfolio, here’s a look at how MCD stacks up with Starbucks stock

McDonald’s stock is valued a bit lower than Starbucks stock, a wrinkle from recent turbulence as people look toward healthier fast food options.

As a result, MCD suffered through a year of negative sales growth and white hot scrutiny by investors and analysts. Starbucks stock, too, has had its share of rough times, losing a bit of its appeal amid calls from consumers for more specialized, local offerings.

In looking at the two companies’ financials, one thing stands out — the debt to equity ratio.

McDonald’s long-term debt to equity ratio is up at 40.6 while Starbucks is at a much more comfortable 0.6. This is telling in terms of financial strength, as the huge amount of debt MCD is sitting on is surely putting a kink in its spine.

The burger chain attributed its growing financial obligations to increased investment in its turnaround plans, but the firm saw its credit rating drop due to a marked increase in debt in 2015.

So Who Do You Go With?

Aside from the fact that McDonald’s debt load has been increasing at an alarming rate, Starbucks stock is a better buy. The coffee house from Seattle has much more growth potential than the Golden Arches. And Starbucks is more than just a coffee shop; the company has expanded into new markets with grocery store product, k-cups and a line of specialty teas called Teavana.

Starbucks is also making its way further into Asia with several new store openings in China. So far the company has opened more than 800 new stores in Asia and revenue in that region grew by 18% in the third quarter.

The firm is planning to push forward its Teavana line in China as well as opening a Reserve Roastery and Tasting Room in Shanghai within the next year.

Bottom Line on McDonald’s and Starbucks Stock

Both Starbucks and McDonald’s are ramping up their online presence and outfitting stores with more technological flourishes, but Starbucks stock has the edge.

Not only does Starbucks hold more money for customers via it’s loyalty program than many small banks, but the company’s seamless integration of mobile payments and its wildly popular app prove that the firm is on top of the latest consumer trends.

McDonald’s, on the other hand, is a straggler in tech. The company has struggled to implement any lasting loyalty programs and has been slow to integrate technology into its restaurants.

Recently, MCD started adding tablets to some of its U.K. locations and has been testing out self-serve kiosks to cut down on labor costs. The company, however, still has a long way to go before competing with the likes of Starbucks.

MCD is certainly not a bad investment, especially for income investors as the fast food chain boasts a 3% dividend yield. When head-to-head, however, Starbucks stock has the clear advantage with stronger financials, more growth potential and a better handle on integrating technology.

As of this writing, Laura Hoy was long SBUX stock.

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Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/mcd-sbux-mcdonalds-starbucks-stock-nyse-nasdaq/.

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