I can appreciate why people would rather avoid restaurant-based investments, including popular fast-food outlets such as McDonald’s (NYSE:MCD). Among the hardest-hit industries, restaurants have suffered tremendously from stay-at-home orders. Even as most states are gradually lifting their restrictions, an aura of fear has impacted consumer sentiment. That said, MCD stock has lost its characteristic stability since late April.
Not helping matters is the company’s first-quarter earnings report. Though McDonald’s produced mixed results — missing expectations for earnings per share, but beating the consensus revenue target — the damage that the novel coronavirus rendered was decidedly negative. For instance, while MCD rang up $4.71 billion in sales against a consensus estimate of $4.65 billion, this tally was down 6% year-over-year.
Additionally, global same-store sales fell 3.4% in the first three months of the year, while U.S. same-store sales were essentially flat due to March’s metric dropping 13.4%. Worryingly, same-store sales between mid-March to mid-April tanked 25%, suggesting a long road to recovery. With all of that in mind, Wall Street didn’t take too kindly to this disclosure and sent MCD stock lower following the earnings report.
Shares have yet to recover, drawing skepticism toward MCD. Although 99% of McDonald’s locations are open, the drive-thru, delivery and takeout options haven’t been able to fully mitigate the demand shortfall. On the other hand, fast-food rivals such as Domino’s Pizza (NYSE:DPZ) already thrived on the delivery model — making DPZ one of the hottest commodities in the markets.
Overall, it’s not all bad news for MCD stock. Some markets, such as France and Austria, have enjoyed a demand surge as restaurants in those countries reopen. And as we do the same, we should expect similar outcomes for the domestic market.
MCD Stock Is a Proven Recession-Resistant Name
If you drive around town, you’ll probably notice as I have that the McDonald’s drive-thru line has been getting longer. I don’t think that’s a coincidence. As people venture out of quarantine, they want some semblance of their past paradigm. Fast-food burger joints help resolve that nostalgia, which will steadily lift demand for MCD stock.
Therefore, I would take any fear-based dips in MCD as buying opportunities. Not only is this company strong, but its brand appeal shines bright whether in a bull or bear market.
For one thing, even during tough times, people need an outlet. With the terrible unemployment numbers that have come out, along with grave uncertainty about economic stability, I doubt that consumers are going to splurge on high-end restaurants or even mid-tier ones for a while. But McDonald’s offers a cheap excursion, one that many people will take despite these trying circumstances.
It’s the same thesis that drove Coca-Cola (NYSE:KO) out of the depths of the Great Recession. Along with a strong fiscal position, Coca-Cola products provided cheap treats for budget-pressured families. And now, the same situation applies to MCD stock.
Second, the coronavirus has disrupted almost every facet of our lives. But one of the most significant, though relatively underappreciated impacts is to our psychology. Suddenly, we were all thrust into a paradigm of quarantines and social distancing. As a result, many people sought various coping mechanisms.
Perhaps the most popular has been binge-watching, which explains the meteoric rise of Netflix (NASDAQ:NFLX). But another mechanism is emotional eating. Isolated from others, many have resolved their stress through eating. And while it’s a cynical argument, McDonald’s specializes in tasty — and in the case of their French fries, addictive — food.
This newly formed habit is likely to carry over post-coronavirus.
A Valid Case for Pent-up Demand
Finally, McDonald’s stock is almost sure to move higher from its lows due to pent-up demand. According to the Washington Post, several out-of-state visitors flocked to Georgia shortly after it allowed dine-in restaurants along with other businesses to open.
I don’t find this surprising. With millions of Americans deprived of their basic freedoms for months, it was inevitable that consumers will return.
However, this narrative is particularly beneficial for MCD and similar businesses. Understandably, people are hesitant to make major purchases, such as buying a house or a car. But a Big Mac? Again, this is a cheap pleasure that now serves as a connection to the old normal.
However, the markets are being irrational by only focusing on the bad news. Therefore, make sure to consider going into any significant dips as the worst for MCD is probably behind it.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.