MCD a Compelling Buy on Irrational Selling

Updated from 8:32 a.m. EST on Jan. 28.

McDonald's (MCD - commentary - Cramer's Take) is getting clocked today.

This is not because of EPS or revenue growth, both of which were stellar. This is not because of disappointing growth in Europe or Asia, where the company is doing great. It is not due to margins, which rose despite rising commodity prices.

It is due to flat margins in the United States for the month of December. With January nearly in the book, the company stated that January comps in the U.S. will rebound to a range of 1% to 2%.

The U.S. is about to get a slug of monetary and fiscal policy. Since the beginning of the year, crude prices are down about 10%. The weather for most of the country has been spectacular in January. Thus, most of the headwinds that McDonald's could have faced will be turning to tailwinds as we enter the end of the first quarter and the beginning of the second quarter.

Add to that:

• China growth;
• the European adoption of new products and menu expansions that were so successful in the U.S.;
• the successful introduction of the McCafe concept in Germany -- I understand that Canada has some as well in Montreal (is there anyone up north who can confirm that for me?) -- which could be expanded to the U.S. (imagine a McCafe across the street from the every Starbucks (SBUX - commentary - Cramer's Take) in the U.S.); and
• a hefty 3% dividend and stock buyback.

When you put all that together, McDonald's is a compelling buy on today's irrational selling. If you echoed my actions when I took some McDonald's off the table in December, then it might interest you to know that I have repurchased some McDonald's today.

McDonald's reported fourth-quarter 2007 EPS of 73 cents, excluding one-time net tax benefits of 33 cents, on revenue of $5.75 billion. Currency translation benefitted earnings by 4 cents in the quarter. Same-store sales in the U.S. rose 3.3% in the quarter but were flat in December. Asia-Pacific, Middle East and Africa same-store comps were 11.4% in the quarter, while Europe also delivered double-digit comp increases.

McDonald's Board of Directors has decided that, beginning in 2008, the company will pay its dividend on a quarterly rather than on an annual basis. The first quarterly dividend will be for 37.5 cents, payable on March 17, 2008, to shareholders of record on March 3, 2008. This quarterly dividend is in line with the annual rate of $1.50 set in November of 2007. Expect the dividend rate to get a boost sometime this year.

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At the time of publication, Rothbort was long McDonald's, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.