Andrew, I find your analysis of MCD insightful, and believe that an investment in MCD will be handsomely profitable in the intermediate to long term, if not sooner, largely for the reasons you have laid out. Moreover, if MCD actually manages to turn around some of the problems it has faced domestically--through better marketing and better-liked food--, then MCD will turn out to have been a "double play" as perceptions turn dramatically more positive among investors.
Indeed, expectations seem to have been beaten so low--just this week I saw yet another "death of a great brand name" piece on MCD--that even a hint of a domestic turnaround would likely boost the stock and the corporate managers' prestige. Management undoubtedly knows that to be true, and therefore will work toward that end. (Vanity--not to mention stock options--can be a good motivator, and seeing story after story about one's purported business ineptitude may give MCD's executives an extra dose of motivation to improve their performance. It also may be worth noting that Warren Buffett has stated that he invests in a company only if he believes that its managers are of high quality. Presumably, he has some confidence in MCD's executives. Of course, Buffett also says that he looks for businesses that even fools could run without ruining.)
But from an investors' point of view, the important thing is that, for the reasons you've articulated, we have both upside potential and downside protection even if MCD management doesn't turn this ship around. After all, I don't think many people thought of Dairy Queen as having had an amazing story for years (it certainly hasn't been a glamour stock "a la Starbucks"). But that fact didn't make DQ a bad investment.
Thanks for sharing your analysis. |
