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MCD for UGM - My theories
TLindt, my child is now 11, and smart, so I'm putting away for college. Her idea of fun on Saturday AM is to read the paper for local tag sales, get out her little stash of cash, hop on her bike and go buy stuffed animals and books cheap. And she usually gets a bargain. In the summer, she runs a mean lemonade stand.
So, I'm trying to use her UGMA as a way for her to learn early about the value of investment. One of the games she loves to play is for me to identify a product or service category, and she calls out the leading brand. "Q: Sneakers? A:Nike!" "Q:Computer chips? A: Intel Inside!" "Q: Fast Food? A: MacDonalds!"
Like Buffett, I want for her a business she can understand, with a product she knows and uses, and which has a strong brand and excellent long term prospects. MCD seems a natural. NKE and INTC are too, but I don't think they are a bargain, like MCD. Yet.
I see MCD as a long-term, global play. Right now, we and Buffett can get a deal, and I think its because most of its investors are not giving enough credit to its overseas investment and growth. Sure, MCD is getting a lot of competition in the US. But as its investment across the globe starts to kick in, US sales will become an increasingly smaller share of its mix. The economic growth of the US is going to continue, I think, and throughout the world, especially the developing world, I expect to see the same phenomenon we saw when MCD opened in Russia ... people eager to try the filling, satisfying, and reliably affordable food that they associate with the success story of the US.
Right now, the strong dollar is holding back the degree to which foreign earnings are flowing to the bottom line at MCD. And MCD is investing heavily in countries like Brazil and Eastern Europe, where a growing middle class will increasingly buy their products and invest in franchises. I'm looking over the horizon to the point a few years away, when the dollar is less strong to foreign currencies, and these capital investments are threaded back, and the earnings get a boost from the exchange rate, at the same time capital investment becomes a lower part of the expense load.
With MCD's strong brand name, excellent cash-flow-based business model, and ability to franchise its name to keep future capital investment low, its an understandable business model for a young person to watch grow over the next 10, 20 years.
Just my perspective on MCD.
Other issues in my child's UGMA include NXTL @$14, RAIN @$23, RII @$28 and OMKT @$11. All bought with a 10 year perspective.
Doug (long MCD in UGMA) |
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