McDonald's shares look dollar-menu cheap

McDonald's (MCD) might secretly wish that the recession would never end. The Dow component posted some more impressive quarterly results Thursday, which easily beat Wall Street's forecasts. Perhaps most impressive, global same-store sales, a key figure measuring sales at restaurants open more than a year, jumped more than five percent.

It just goes to show that a well-run company selling cheap food to cash-strapped consumers can do very well in a global downturn. The market naturally rewarded Mickey D's performance by gobbling up shares like a Big Mac with fries.

True, it's never ideal to initiate or add to a position when a stock is popping, but after McDonald's third-quarter earnings report? Well, we're loving it.
Even with today's action shares still look like a bargain by a number of relative valuation measures. On both a forward and trailing price/earnings basis, the stock offers discounts of more than 25 percent to both the S&P 500 ($INX) and the company's own five-year average, according to Thomson Reuters. The same goes for the price/earnings-to-growth ratio, which measures how fast a company's stock is rising relative to its growth prospects. On that basis shares offers discounts of about 15 percent to its own five-year average and more than 25 percent to the broader market.

Finally, add the tempting 3.7 percent dividend yield to analysts' average price target of $65.44 and you get an implied upside of nearly 13 percent over the next 12 months or so. That's pretty compelling for a blue-chip dividend payer whose shares look about as cheap as the items on its dollar menu.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum