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McDonald's: Protection From The Downside


One of the key positive aspects for McDonald’s stock is protection from downside price movement.

McDonald’s free cash flow will continue to support the stock price.

I expect the stock to continue to hold up well during downturns.

McDonald's (NYSE:MCD) is not likely to outperform the S&P 500 over the next few years due to its below average growth. McDonald's is not the typical stock that I would invest in as I have been focusing on companies with above average growth. I happened to buy MCD at a good time during the 2008 financial crisis. I like holding the stock to help balance a high-growth portfolio. In addition to the dividends, another key positive for the stock is capital preservation and protection from the downside.

The stock performed well from 2009 through 2011 and then really went nowhere for the past 4 years. It only recently broke free from the $100 barrier on recent optimism of comp store sales increases and the all-day breakfast initiative.

I think that Easterbrook is on the right track to help boost comp store sales with the move to all-day breakfast. Easterbrook has the guts to make tangible changes that will positively impact the company. So, I think that more comp store sales increases are on the horizon. The all-day breakfast hasn't been reflected in the company's last quarterly report. The benefit from this initiative will be reflected in the current quarter.

One of the key positive aspects of the stock is its resilience during corrections and bear markets. The stock only dipped 16% during the financial crisis of 2008. At the same time the S&P 500 dropped over 50% from peak to trough. McDonald's stock actually rose during the European debt crisis in 2011 as it is considered a defensive stock. The stock did take a 14% dip in 2012 as investors rotated into higher growth companies after the crisis was resolved. That was still lower than the 17% dip that the S&P 500 experienced during the...