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The Case for McDonald's

Recs

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February 13, 2014 – Comments (0) | RELATED TICKERS: MCD , SBUX

Board: McDonald's Corp.

Author: Robertgene

Thought I'd check out the boards and see what was new on here for MCD. It's my largest holding, and many times I kind of forget about it because it's not a holding that really needs coddled.

Maybe that explains the lack of posts on MCD boards.

Anyway, I feel like what I am finding on here falls into either the negative or worried category.

So I thought I'd explain my buy thesis, and why it's my largest holding for perspective.

I'm a huge Buffet fan, and therefore follow many of his core principles. Probably the first would be to develop a plan that fits my style and buy business' accordingly. I may begin to research a path based on a rec, but I only buy when the business can play it role in my port.

Ok so McDonald's:

1. It's a business I understand. Not only because I've been a customer since I was a toddler. But the basics of how they operate, what they offer, and what to expect when you go there are clear.

2. It fulfills a basic human need. And it does so at a price point that anyone can afford. While the products are not unique, many of the flavors, preperation techniques, and combinations are.

3. Growth. As large as the MCD footprint already is, I still see huge room for future growth domestically and internationally. Think of all the small towns just outside of the city when you were growing up. If you were to check today I'm sure they are not that small anymore. I'm sure some are still not big enough yet for MCD, but maybe in 10-15 years (and I'll still own the stock). Now grab your world map and a red sharpie, and start peppering China, India, Russia, etc. with similar location points like the US. It's simple business model, and franchise structure, offers a great growth scenario. As much as I'd like that to happen I want the short term to be focused on handling short term issues I see as very important over growth.

Minimum wage disputes- I think they should offer a minimum wage increase. Not as much as the worker's cause is demanding, but I do believe the current wages are too low. MCD needs to figure out where they can be, and make it happen so the issue can be put to bed. Menu offerings- lately I feel the company has lost focus a bit. Mighty Wings, yeah right, they were good when I tried them (only did so I could make an informed decision), but they were not a value and In my opinion were out of place in the overall menu scheme. However you look at it, it didn't work and I just don't understand how someone got that idea pushed to fruition. Coffee- while I love McCafe and that profits it brings. I feel like they are wasting too much energy trying to match Starbucks coffee shop atmosphere. I'm all for modern renovation of locations, but thinking there needs to be just a coffee lounge area is wasted effort. It's McDonald's; most people aren't coming in just for coffee, and those that do understand that you are McDonald's and have already made an internal compromise to forgo atmosphere for comparable quality (MCD makes the #2 caramel frap in my opinion behind SBUX), and convenience (whether it's the location, or ability to get the meal they want with their java selection).

4. Dividend (current 3.48% yield). Depending where you live the weather has been crazy this winter. Here in Ohio the snows been perfect for making snowballs, or rolling then into their larger brethren to make you big snowman sections. Ever roll one down a steep hill and see how big it gets? Well that's McDonalds. Ball up a wad of cash, layer with glue, find a nice hill (covered with more money), and roll your money ball down....you get the hint!

5. I'm a contractor, so many of the guys I work with on jobs and I all frequent MCD regularly. We know we can get in and out fast, lunch will be reasonably priced, service always friendly where I've gone, locations always clean and maintained (even though many of us look like dirt balls when working on large projects).

Those are the main points. But to conclude, I'd like to make a few points. I feel like recently MCDs been getting a lot of negative press for one reason or another.

1. Minimum wage- you would think MCD were the Lex Luther of fast food from the headlines. I'd like to note that MCD pays in comparison to the rest of the industry. I think they receive headline credit because they are the big dog. Funny how I never hear any mention in those articles about MCD doing their part to help stimulate the economy during the "Great Recession" by hiring an additional one million workers.....1,000,000 workers.

2. Promoting Obesity- MCD has many initiatives in place to educate on the importance of nutritional health, especially kids. But the biggest thing that gets me is I've never seen a Ronald McDonald drag a family into a location and force them to eat the food. It's a choice. And if someone chooses to walk in and grab a Big Mac to satisfy a craving, that's the choice they made (regardless of calorie count)
3. Any reporter reading this can also feel free to make the next article written on MCD, a tribute to the benefits Ronald McDonald a House offers.

I'll be the first to say MCD needs to do better in some areas. But for their scale, and the plethora of positive things they do on their part for our economy as a whole, I'm proud to be a shareholder and I'm confident they have what it takes to generate decades of solid returns for me.

So confident they are my #1 holding out of 22. I'm more of a concentrated investor that takes the time to find solid, timeless business' and getting behind them.

Congrats if you managed to read all that!!! Fool On! 

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