McDonald's -- Why Happy Meal Breakfasts Could Mean Happy Investors - TheStreet

Two of McDonald's (MCD) - Get Report  advantages are its kids meals and its breakfast menu. And last week the company announced a perfect combination of both. This could be big news for investors banking on the restaurant chain's seemingly indelible and resilient appeal.

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If you grew up in the 1980s or 1990s, you are more than familiar with McDonald's signature Happy Meal. The fast-food company practically invented the kids meal, packaging food at parent-friendly prices with kid-friendly prizes. It was a great restaurant marketing success.

And today the kids meal industry has continued to grow. It now means big profits for companies and investors. And fast-casual restaurants -- which are perceived to be of higher quality than fast-food chains but which also offer quick counter service -- have also entered the kids meal arena.

Panera Bread (PNRA) recently made headlines when it simultaneously slammed McDonald's marketing techniques aimed at children and announced that it is improving its ingredients. Panera's CEO Ron Shaich issued a statement promising not to offer "toys and games" but to serve up "honest food choices."

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But now McDonald's is announcing that is will begin testing a breakfast Happy Meal menu at 73 locations in Tulsa, Okla. There will be two selections: two McGriddles or an Egg & Cheese McMuffin without Canadian bacon. Both options come with an apple slice or yogurt on the side.

"Since the launch of the all-day breakfast, more of our customers have been reaching out to us and asking us for these choices for their kids in the Happy Meals," says Pam Williams, a McDonald's director of innovation.

Innovations such as the all-day breakfast, as well as recipe tweaks to include more natural ingredients, have been part of McDonald's CEO Steve Easterbrook's initiative to revamp the company and take on Panera. McDonald's had fallen by the wayside as fast-casual companies such Panera Bread and Chipotle Mexican Grill gained favor among diners.

But then Chipotle suffered a momentous loss when a number of customers were sickened with foodborne illnesses after eating at Chipotle locations. And last week, a Chipotle executive conceded that it is losing customers to McDonald's.

McDonald's efforts at improving the quality of its ingredients appear to be working. And it's winning back customers. Panera might be cutting the high-fructose corn syrup from its menus, but so is McDonald's. And the company is also pledging to use higher-quality ingredients such as cage-free eggs in its products.

If an all-day kids breakfast becomes a staple on menus across the country, it could give a tasty boost to McDonald's profits, indeed.

Investors should grab shares of this long-term, legacy play on any dips.


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The author is an independent contributor and at the time of publication owned none of the stocks mentioned.