A banker friend asked me the other day if McDonalds is a good short. He has done very well in picking accounting and software stocks lately and now sees his next opportunity here. I didn’t help him with his selection but we like to talk just as I enjoy sharing some adventures with you, my loyal readers.
Like you, he’s going to do it his way whether I give him an idea or two, but as anyone who knows business, it’s sometimes smart to have another opinion or someone who likes to observe and participate. He’s not going to short $100 of it, so maybe it’s worth seeing if there is another opinion out there that confirms or disproves his hunch.
My first reaction was the only time this restaurant was a good short was during the Atkins Diet fad and the documentary Super Size Me.
It looked like one during the Biden administration, but when Trump went to McDonald's to work there for a day while campaigning (around $300), you wouldn’t think the stock would be trading now at, aghast, $275.
I have to say that this is the first time in 10 years that it is trading below its trend. During COVID, it crept down but bounced right back up. The chart displays this clearly.
Let’s compare it to an ETF of a selection of a variety of food and restaurants that has done very well, but this ETF holdings don’t have one big expense for McDonald’s…meat
Live Cattle, and anything related, has hit record highs, and consumers' purchasing power has not.
But it also seems that Gasoline prices are also a key factor, as the top was around the beginning of the Iran war.
So the trend is your friend with McDonald's, but if Cattle and oil start to reverse their strong price increase, and consumers' purchasing power comes back, then McDonald's may not stay down for long.
Since the stock is expensive and options tend to be cheaper on blue-chip, dividend-yielding stocks, there are probably a few ways to create a strategy to participate in weakness in this famed name.
For subscribers, I share one today.
Make it a profitable Monday
Eric
