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AAPL   117.65 (-2.06%)
MSFT   226.91 (+0.08%)
FB   256.26 (-0.54%)
GOOGL   2,032.10 (-0.09%)
TSLA   543.90 (-12.48%)
AMZN   2,885.96 (-3.08%)
NVDA   468.37 (-5.34%)
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GE   13.18 (-2.87%)
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MSFT   226.91 (+0.08%)
FB   256.26 (-0.54%)
GOOGL   2,032.10 (-0.09%)
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AMZN   2,885.96 (-3.08%)
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GE   13.18 (-2.87%)
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McDonald’s (NYSE: MCD) Looks Appetizing Ahead of Q4 Earnings

Tuesday, January 26, 2021 | Nick Vasco
McDonald’s (NYSE: MCD) Looks Appetizing Ahead of Q4 EarningsMcDonald’s (NYSE: MCD) is set to release its Q4 earnings on Friday; like a lot of restaurants, the fast-food giant was happy to see the calendar turn to 2021.

That said, McDonald’s shares performed well in 2020. After bottoming in March with the rest of the market, shares nearly doubled over the next 7 months, setting all-time highs in October.

The company has navigated the pandemic as well as anyone could have expected, and looks set to exceed pre-pandemic heights in 2021.

Moving in the Right Direction

The second quarter was rough for McDonald’s – global comps were down 24% yoy and US comps dipped 8.7% yoy. But comps improved as the quarter progressed. McDonald’s carried that momentum into Q3, with global comps down just 2.2% and US comps up 4.6% for the full quarter.

US comps were up low double-digits in September, which was McDonald’s highest monthly comp in nearly a decade. The Travis Scott promotion was largely responsible for the stellar September performance. Though it is only a one-off benefit for McDonald’s, it is not the first successful McDonald’s promotion. And it won’t be the last.

McDonald’s launched its “Famous Orders platform during a pivotal time when consumers were looking for reasons to eat out again. The platform was launched with two multi-cultural brand advocates. First, the Travis Scott Meal in September; and building on that success, our second, with J Balvin; and there are more to come.”

In October, McDonald’s recorded growth “across all dayparts.” This should not be overlooked, because breakfast has been an uphill battle for McDonald’s since the onset of the pandemic. Two reasons for that:

  1. With people working from home, they haven’t needed to grab breakfast on-the-go.
  2. The segment has attracted a lot of competition. Wendy’s (NASDAQ: WEN), for example, successfully launched breakfast in 2020.

You shouldn’t get too excited by the month of growth – that easily could have reversed in November and December with cold weather and COVID-19 cases peaking – but it bodes well post-pandemic. Speaking of post-pandemic…

McDonald’s Could Gain Market Share in 2021

Thousands of restaurants have been forced to shudder their doors since the onset of the pandemic. Many of them will never recover. Their loss, however, is McDonald’s opportunity. McDonald’s, with its global brand and infrastructure, could grab a bigger piece of the restaurant sales pie in a post-COVID world. A pie that should return to pre-pandemic levels.

But Keep Expectations in Check on Stimulus Checks

There has been a lot of chatter about which companies will benefit from the disbursement of stimulus checks in Q1 2021. A lot of analysts think that McDonald’s will get a nice boost. Their optimism isn’t baseless. On the Q1 earnings call, CEO Chris Kempczinski said, “there is a benefit that I think you could attribute to the stimulus checks.”

The checks could be a tailwind for McDonald’s, but don’t expect them to be a game-changer. McDonald’s has a low average check – often around $5, give or take. When times are tight, few are cutting out their Big Mac. Instead, they are putting off a car repair or waiting to buy something non-essential on Amazon (NASDAQ: AMZN).

A lot of people took their $1,200 checks last spring and opened a brokerage account.

The Dividend is Juicy

McDonald’s pays a 2.36% dividend, which is more than double the 10-year treasury yield. And the dividend itself has more than doubled over the last decade.

The payout ratio of just over 75% looks dangerously high at first glance, but McDonald’s is coming off a tough year. Pre-pandemic, the payout ratio was a lot more sustainable at around 60%. With McDonald’s set for a strong recovery in 2021, expect the payout ratio to dip and the dividend to increase.

How Should You Play McDonald’s?

McDonald’s is unlikely to post a blowout Q4, but it doesn’t look like the market is expecting it to do so. Shares have been rangebound between around $205 and $220 since the middle of November.

McDonald’s (NYSE: MCD) Looks Appetizing Ahead of Q4 Earnings

MCD isn’t going to be a multi-bagger, but shares could easily exceed October’s highs once it becomes apparent that the company is well-positioned post-pandemic. The prospects for solid capital gains and a higher dividend make McDonald’s an appetizing short and long-term investment.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
McDonald's (MCD)3.0$204.760.0%2.52%31.26Buy$232.57
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7 Stocks to Support Your New Year’s Resolutions

After a year like 2020, many Americans figure that just getting to 2021 was enough. But for many people, the start of a new year still means making resolutions. And while many Americans are still waking up to Groundhog’s Day, there is hope that things will look dramatically different in September than they do right now.

Some of the most popular resolutions include losing weight, exercising more, or taking steps to get our life and/or business more organized. And many pure-play companies lean into these trends and are doing well.

As an alternative to this, you can also invest in companies that are not pure plays but can still benefit from consumers looking to start fresh. Owning these stocks helps you manage your risk. If the trend holds, you can ride the wave. On the other hand, if the wave turns into a ripple, the stocks have other catalysts to get them through.

In this special presentation, we’ll take a look at both of these categories. We’ve got several pure-play companies that let investors buy stocks in companies benefiting from these trends. We’ll also give you a few stocks that fall in the latter category.

These are stocks that you might buy at any time and for many reasons. However, they present excellent buys as the new year begins.

View the "7 Stocks to Support Your New Year’s Resolutions".

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