Recession-Proof Stocks: McDonald's

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Even in these tough times, some companies remain well-positioned to excel, despite a consumer spending slowdown precipitated by a potent brew of economic pressures. McDonald's (NYSE: MCD  ) is one such business, and a stock investors shouldn't ignore.

Happy Meals, in more ways than one
When it comes to grabbing quick meals on a budget, McDonald's is foremost in many consumers' minds. Look no further than the "Dollar Menu," where thrifty eaters can score an entire meal for a buck or two.

McDonald's has come under fire from the fat police regarding its high-calorie fare. However, the fast food giant has made high-profile efforts to offer more salads and other healthy choices, including fruit, chicken, bottled water, and yogurt.

It's getting harder and harder to remember a time when McDonald's desperately needed to turn its business around. Its massive size once made that prospect uncertain, but the company's pulled off that feat with flying colors, even as rivals struggle. Wendy's (NYSE: WEN  ) has had a very difficult time staging a turnaround, and is about to get bought out by Triarc Cos (NYSE: TRY  ) , owner of Arby's. Burger King (NYSE: BKC  ) and CKE Restaurants (NYSE: CKR  ) , the company behind Hardee's and Carl's Jr., are also getting charbroiled by the market to various degrees.

Investors are lovin' it
Meanwhile, McDonald's shareholders have been greatly rewarded by the fast food company's stellar recent performance. A Big Mac fan who picked up shares five years ago has seen their value increase 150%; over the past two years, shares have still generated a 75% return. Not bad for a "boring" blue chip, eh?

Meanwhile, don't forget that McDonald's paid a juicy dollar dividend in 2006; its dividend yield is currently 2.60%. And how about when it spun off its hot burrito unit, Chipotle Mexican Grill (NYSE: CMG  ) (NYSE: CMG-B  ) ? McDonald's has been doling out financial rewards for a while now.

Of course, McDonald's might look a bit expensive to some investors, since it trades at 27 times earnings. In addition, high commodity prices are pinching margins for many restaurant companies, leaving them wondering how much of those costs they can pass on to already-strapped customers. McDonald's will hardly be immune to this dilemma.

Still, investors shouldn't underestimate the company's ability to give budget-minded consumers quick, inexpensive meals. In an era of $4-a-gallon gasoline, I'd wager that people will keep on lining up en masse for cheap, convenient eats. The company's hot same-store sales seem to speak volumes about its value proposition's popularity with consumers.

Many experts now theorize that consumers are "trading down" to the retail options that offer the greatest value. If so, McDonald's should truly benefit from that kind of consumer environment.

Smokin' hot bouncy buns
For all its popularity, potential investors might still be able to scoop up McDonald's shares at slightly cheaper prices. Although the company has blown past analysts' expectations more often than not lately, a flashback to January reveals that McDonald's shares basically went on sale at one point, when some investors temporarily flipped out about weaker-than-expected monthly comps data.

Still, I believe McDonald's is a great stock idea now, since it helps consumers pinch their pennies and offers investors the potential for growth and dividend income. In that regard, it's one of those stocks that cannot be stopped, not even by major economic headwinds.

Do you agree that McDonald's can bounce out of a recession in a big way? If you do, sign into Motley Fool CAPS and mark it as an "outperform." You wouldn't be the first to think this is a winner for 2008 and beyond, so let your bullish opinion on this burger giant be known.

Chipotle has been recommended by both Motley Fool Hidden Gems and Motley Fool Rule Breakers.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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