Trade-Ideas LLC identified

McDonald's

(

MCD

) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified McDonald's as such a stock due to the following factors:

  • MCD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $679.4 million.
  • MCD has traded 2.5 million shares today.
  • MCD is trading at 2.94 times the normal volume for the stock at this time of day.
  • MCD crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on MCD:

McDonald's Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. The stock currently has a dividend yield of 2.8%. MCD has a PE ratio of 25. Currently there are 9 analysts that rate McDonald's a buy, 2 analysts rate it a sell, and 12 rate it a hold.

The average volume for McDonald's has been 5.3 million shares per day over the past 30 days. McDonald's has a market cap of $111.8 billion and is part of the services sector and leisure industry. The stock has a beta of 0.64 and a short float of 1.7% with 2.62 days to cover. Shares are up 3% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates McDonald's as a

buy

. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, notable return on equity, expanding profit margins and good cash flow from operations. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:

  • Powered by its strong earnings growth of 46.42% and other important driving factors, this stock has surged by 30.68% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MCD should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Hotels, Restaurants & Leisure industry average. The net income increased by 35.4% when compared to the same quarter one year prior, rising from $811.50 million to $1,098.60 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, MCDONALD'S CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • 45.69% is the gross profit margin for MCDONALD'S CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 18.60% is above that of the industry average.
  • Net operating cash flow has slightly increased to $1,719.10 million or 1.15% when compared to the same quarter last year. Despite an increase in cash flow, MCDONALD'S CORP's average is still marginally south of the industry average growth rate of 5.09%.

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