- Dow–30 The McDonald’s Member is one of the world’s best-known brands in the fast food industry
- MCD stock has risen more than 12.5% so far in 2021 and hit a record high in July.
- Potential buy and hold investors might view any short-term decline in McDonald’s shares as a timely entry point
Investors in Mcdonalds (NYSE 🙂 stocks have had a strong 2021 as stocks have risen nearly 14.5% year-to-date. The stock hit an all-time high of $ 247.05 on July 27. On September 22, MCD was at $ 245.15. This price supports a dividend yield of 2.1%.
The 52-week range for shares of the Chicago fast food chain and franchisor was between $ 202.73 and $ 247.05, while the company‘its market capitalization is $ 188.8 billion. McDonald’s is one of 30 constituents of the mega-cap index, which has risen about 12.2% so far this year.
McDonald’s is the world’s leading foodservice retailer in the “Quick Service Restaurant (QSR)” segment. It operates more than 38,000 sites around the world. The brand is also among the most valuable in the world.
End of July, McDonald’s second quarter results. Revenue of $ 5.89 billion increased 57% year-on-year. Net income and non-GAAP EPS were $ 2.22 billion and $ 2.37, respectively.
Investors were pleased to see comparable store sales in the United States increase 25.9% in the quarter and 14.9% on a two-year basis before the pandemic. Global same-store sales increased 40.5% year-over-year and 6.9% on a two-year basis.
Regarding the results, CEO Chris Kempczinski said:
“Our performance is a continued demonstration of our company’s large-scale strength and resilience as global pharmaceutical sales in the second quarter increased nearly 7% from 2019… Clearly our next chapter will be driven by our digital leadership. “
More than 14,000 McDonald’s outlets are based in the United States. Next come Japan, China, Germany, Canada, France, United Kingdom and Australia.
While the pandemic remains a concern for management, McDonald’s believes several enablers, such as delivery, digital orders and self-service kiosks, as well as customer retention, will help drive revenue growth. Global brand recognition means customers trust the brand resulting in increased global sales and positive profits.
What to expect from MCD Store
Among 38 analysts surveyed via Investing.com, McDonald’s stock has a ‘outperform the rating. The stocks have a 12-month price target of $ 266.97, which implies a return of almost 9% from current levels. The 12-month price range is currently between $ 229 and $ 295.
The MCD stock’s P / E and P / S ratios stand at 26.19x and 8.26x, respectively, indicating exaggerated valuation levels by historical standards.
By way of comparison, the ratios of Yum! Brands (NYSE :), whose restaurant chains include KFC, Pizza Hut, and Taco Bell, are 28.65x and 5.88x. Likewise, these two ratios for Wendy’s company (NASDAQ 🙂 are 26.65x and 2.58x.
Investors looking at technical charts might be interested to know that a number of short term oscillators in MCD stocks are overbought. While they can go on for weeks or even months, potential profit-taking could also be imminent. When we look at longer term technical indicators, we note that the bull run on McDonald’s could potentially take stocks to new highs in the coming months.
Still, if broader markets or consumer stocks were to come under pressure for the rest of the month or into October, we might first see McDonald’s stock drop to $ 235 or even $ 230, after which it might s ‘swap sideways as she establishes a new base. In the event of such a decline, MCD should find solid support around the $ 230 level.
However, we expect the stock to take another step higher, taking it above the recent all-time high of $ 247.05, and then maybe towards $ 260. While MCD stocks are volatile in the short term, we are bullish on the Golden Arches.
3 possible professions
1. Buy MCD stocks at current levels
Investors who aren’t concerned about daily price swings and believe in the long-term potential of the business might consider investing in McDonald’s stocks now.
On September 22, MCD stock closed at $ 243.13. Investors who buy and hold should expect to hold this long position for several months as the stock tries first to hit the all-time high of $ 247.05 and then towards $ 266.97, analysts said. vsconsensus estimate. Such a decision would lead to a return of around 9%.
Meanwhile, investors concerned about large declines might also consider placing a stop-loss around 3-5% below their entry point.
2. Buy an ETF with MCD as the main holding company
Many readers know that we regularly cover exchange traded funds (ETFs) that might be suitable for buy and hold investors. So, readers who do not wish to invest any capital in McDonald’s shares but would still like to have substantial exposure to equities might consider looking for a fund that holds the company as their primary asset.
Here are examples of such ETFs:
- SPDR Dow Jones Industrial Average ETF Trust (NYSE :): Fund is up 12.1% year-to-date, and MCD stock‘the weighting s is 5.72%;
- Invesco Dynamic Leisure and Entertainment ETF (NYSE :): this fund is up 24.9% year-to-date, and MCD stock‘the weighting s is 5.04%;
- IShares Evolved US Consumer Staples ETF (NYSE :): the fund is up 5.5% year-to-date, and MCD stock‘The weighting is 4.56%.
3. Buy a LEAPS option as A Substitute To own MCD Store
Investors who wish to buy 100 shares of McDonald’s should invest $ 24,313 (current price of $ 243.13 X 100 shares).
For many bullish investors on McDonald’s‘s, this amount would be a significant investment. While it is also possible to buy a few shares of a given stock (or even fractional shares), some investors might also be interested in purchasing a LEAPS call option.
For example, they might consider buying a LEAPS call with a delta of 0.80, like the MCD call option of January 19, 2024, 145 strike. This option is currently available at $ 101.25. In other words, investors would have to pay a premium of $ 10,125 to purchase this LEAPS call option.
We covered the mechanics and the risk / reward profile of LEAPS. But in layman’s terms, the delta note shows the amount of an option‘The price should move based on a $ 1 change in the underlying security.
In this case, if the MCD stock increases by $ 1 to $ 246.15 (based on the intraday price we are using), the current option price of $ 101.25 should, in theory, increase by 80 cents, based on a delta of 0.80.
The profit loss profile of this trade will constantly change as the price of the underlying McDonald’s option changes. However, on January 19, 2024, it would break even at an underlying price of $ 246.25. To arrive at this number, we can add the current option premium of $ 101.25 to the strike price of $ 145.00, or $ 246.25.
The maximum upside return would not be capped, depending on where the MCD share trades on the day the investor closes the position.
Investors should remember that although the expiration is January 2024, this long-term option still expires. As the expiration date approaches, an option is losing value at an accelerating rate. If McDonald’s shares were to collapse and close below $ 145 in January 2023, the maximum loss would be $ 10,125. Therefore, trade management will be important.