This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

McDonald's Thrives as Consumers Get Cheap

When the going gets tough, people get cheap. McDonald's (MCD), home of the dollar menu, has benefited more than any other fast-food restaurant from the faltering economy.

The company reported impressive October results, overcoming concern that a stronger dollar would hurt international business. Global same-store sales rose 5.5%, and U.S. and Europe sales increased 5.3% and 9.8%, respectively. A revamped menu and attractive prices outweighed health concerns as consumers had less money in their pockets.

Since the health-food craze began in the 1990s, McDonald's has faced criticism for its unhealthy menu, culminating in the documentary movie "Super Size Me" in 2004. However, the restaurant remains a safe haven during turbulent times because of its convenience and affordability. The stock may extend its five-year advance if the economy continues to recede.

During an economic downturn, consumers cut costs, and McDonald's benefits from that. Many people will continue to eat out during a recession, but they are likely to trade down to cheaper restaurants. McDonald's also is a substitute for home cooking, as consumers avoid high supermarket prices in favor of the dollar menu for a cheap and effortless meal.

McDonald's recently received publicity for its standout performance in the restaurant industry, but its stock remains undervalued based on peer valuation. MCD trades at a discount based on price-to-earnings and price-to-book. More importantly, the stock has an earnings growth rate of 169.38, which dwarfs the industry average of 64.66. It carries a "buy" rating from TheStreet.com Ratings.

McDonald's revenue rose 6.2% to $6.26 billion in the third quarter. Net income increased 11.2% to $1.19 billion. Burger King (BKC) said revenue advanced 12% in the three months through October, though earnings missed estimates due to volatile commodity costs.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs