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Why I Want McDonald’s (MCD) Share Price To Drop

26 July 2010 11 Comments

On Friday, McDonald’s Corporation (MCD) reported nice earnings, but it wasn’t enough to impress the analysts (silly I know).  The result was that MCD traded down just slightly (as of writing, it’s down 1.5%).  For me, this is what I want to happen.  I want the share price to drop.  Let me tell you why.

McDonald’s (MCD) is one of two stocks that I buy every single month.  The other stock is Wal-Mart Stores, Inc (WMT) I use a DRIP (dividend reinvestment plan) vehicle to do so.  Let me make it clear that I’m not a proponent of blind, regular investing as is the strategy for the vast majority of 401(k) holders and is the strategy that most all financial advisers would have you do.  But, for the foreseeable future, I do plan on buying these two stocks every single month.

Why These Two Stocks?

My economic view is that we’re in the early innings of a prolonged deflationary recession, possibly a depression (does it really matter how we label it?).  As such, I like companies that will hold up in such an environment.  McDonald’s serves the cheapest food available, and Wal-Mart sells the cheapest consumer goods available.  Both will hold up in a long economic downturn.

Additionally, both of these stocks sport dividends.  The DRIP vehicle will allow me to continually reinvest these dividends and keep my overall fees down.  The reality is that these is a great way to build positions in stocks over a multi-year time frame.  Additionally, you can set your DRIP to automatically deduct from your checking account – automation is always nice.

Lower Share Price

Getting back to the original point… I want the share prices to drop.  I’m 27 years old and want to build a large position in both of these companies.  The lower the share price, the more shares I can buy with my dividends and monthly contribution.

When investing in this type of style, sure, quarterly earnings are important, but making buy or sell decisions based on a single quarter will often result in overreactions and overtrading.  As I mentioned above, I don’t like the idea of buying the S&P 500 on a continual basis just because “stocks will always perform well over the long term.”  I think we’re at a turning point as a country and economy, and I’m just not willing to bet on this accepted viewpoint.  As such, I have found two stocks that I will buy regularly (I do own other positions in other accounts, but I don’t buy more shares regularly).

11 Comments »

  • TaJ said:

    This is pretty much exactly my position as well. Having a really long investment timeframe and no consumer debt means not having to be quite so worried about the country's economic prospects. I'd prefer the economy to do better, of course, but if it doesn't there are still opportunities like this available.

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  • ed silver said:

    McDonals is named McDoanld's Franchise Reality Corp… they make lots of money from the rents they charge franchise stores of at least 11.5% (up to 20%) of each dollar of sales… in other words they do not have a fixed rent to pay, but a percentage of sales rent which is much higher than a fixed rent…. another thing that helps the whole corp and franchise stores to have such low prices is the clout they have in buying all the food they sell. So in the long run they can just raise their prices at the rate of inflation and still beat all other places prices and make much more money than most places do…. I worked for them since 1961 from crew person to an owner of 4 stores, so i do know what I'm talking about

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