Name That Trade $MCD – Golden Arches

by Enis May 13, 2013 3:12 pm • Commentary

McDonald’s has been on an incredible decade-long bull market run, knocking off fast food competitors left and right and making tens of billions of dollars for its shareholders in the process.  Here is the 20 year monthly chart for perspective:

20 year monthly chart of MCD, Courtesy of Bloomberg
20 year monthly chart of MCD, Courtesy of Bloomberg

In the past 10 years, MCD has increased its annual earnings per share by a multiple of 4, but the stock has done even better, up about 8x from its low.  It’s a 3% yielding, well diversified, consistently performing $100 billion market cap company that’s a leading exporter of Americana.  What’s not to like?  

Well, Mickey D’s is showing some signs of strain, both fundamentally and technically.  In fact, MCD only grew earnings by 2% in 2012 vs. 2011.  Last week, MCD moved lower on Wednesday after revealing that same store sales in were lower again in April, led by weakness in China and Europe.  But MCD is also having trouble dealing with increased competition from Wendy’s in the U.S.

But our main concern for the stock is its 70% of sales outside the U.S.  Sales trends are weak overall, and the stronger dollar is going to make those international sales look more like a burden than a boon in the coming quarters.

The stock broke its 50 day for the first time in 2013 last week on big volume (red circles), and I get the sense that it might be the start of a bigger move.

[caption id="attachment_25816" align="alignnone" width="631"]1 year daily chart of MCD, Courtesy of Bloomberg 1 year daily chart of MCD, Courtesy of Bloomberg[/caption]

We are doing nothing now, but I would get even more interested if MCD showed more weakness in the weeks ahead, and then gave me a decent entry on the short side by bouncing back up to the $100 level.  For now, last week’s selloff was the initial alert that has focused my eye on the name, but I want to see more before pulling the trigger.