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Why There Is No Stopping This Company To Become the Next MSFT



October 15, 2010 – Comments (3) | RELATED TICKERS: MCD , WEN , MSFT

As much as I hate this company, MCD will no doubt become one of the largest market capped companies on the New York Stock Exchange.  I don't like their product but I will say what is what.  That what is that McDonald's is on its way to becoming bigger than anyone ever could imagine.  Below are the reasons why.

1.  If you look at MCD's chart from Oct 13, 2003 to Oct 13, 2010, you will see what every investor loves to see: nearly perfect rise with few large dips (~$24/share to $77/share).  If you did your DD on this company every year, there was pretty much no reason to sell. 

2.  On top of that, MCD went from giving $0.40 dividends once a year to now $0.55 dividends four times a year.  That is progress right there.

3.  Today MCD is making so much revenue that their dividend payout ratio is still under 50%.  Now that is what I call solid!

Now on to the less financial reasons and more overall reasons why MCD is going to dominate in the future.

1.  At 82.5 billion market cap, no other competitor comes close.  Wendy's who was once MCD's close competitor years ago is only a shadow of its former self.  At 2.05 billion market cap, MCD is over 40x more valued market wise than WEN.

2.  Even YUM which is composed of KFC, Pizza Hut, Taco Bell, Long John Silvers, and A&W brands combined still only has a market cap of 22.9 billion!

Now on to what we all see.   

1.  I can't name another fast food chain on the planet that has 2 lanes for drive-thrus.  That alone should tell you something.  MCD is so busy and making so much money, that they need two lanes just to stop having cars flood into the street.

2.  MCD is packed nearly from sunrise to sunset.  Have you ever seen an empty MCD?  I haven't.  Even on vacation trips where you stop at an isolated one off the highway, even THAT MCD is packed.  

3.  MCD is clearly going global.  Other countries want to see what all the fuss is about.  MCD is not a business of selling fast food but a business of selling real estate.  (Read the book 'Rich Dad, Poor Dad' for more information)

4.  Obesity is clearly on the rise.  People care less about what they look like today more than ever before.  With MCD's menu catering to coffee drinkers, salad eaters, and other health conscious people, they are still making a ton of money.

5.  Every year, MCD's Monopoly month (going on now) only attracts even MORE customers.  Monopoly pieces are even being sold on Ebay right now.

6.  Ever been to a city where MCD wasn't within 10 miles?  Not me.  I've been to France and even there, I saw 2 MCD in a 5 block radius!

Bottom Line

The bottom line is this.  Do you think that any current fast food competitor stands a chance against MCD?  They have the cash to spend (1.67 billion) and their dividends only continue to increase.  They have locked in the next generation of consumers because they are able to cater to kids.  I personally don't think $100/share is unrealistic.  I actually see MCD going a lot higher than that.  Unless something huge comes up that hurts MCD of 'BP-like' proportions, MCD will be a 100 billion company in no time, and the only thing that will stop MCD, is itself.

Are you 'lovin' it? 

3 Comments – Post Your Own

#1) On October 15, 2010 at 11:54 PM, KenJoshTracker (< 20) wrote:

Only thing I would add is that Jim Skinner is a fantastic CEO.  He was hired into an entry level position at MCD and worked his way up. 


Full disclosure:  I've been a happy shareholder the last several yeas.  

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#2) On October 16, 2010 at 3:34 AM, MGDG (34.73) wrote:

I can name a Fast Food joint that not only has 2 drive-thru lanes, but has for nearly 50 years, In & Out Burger. That said, they never have nor ever will compete with Mickey D's.

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#3) On October 16, 2010 at 3:28 PM, fewl10 (< 20) wrote:

Is it possible that the masses will catch on to the scam that is fast food?  Maybe.

I can't argue that MCD isn't popular, but it only takes bad management to ruin a company.

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