McDonald's: Winner or Sinner?

This article is part of our Rising Star Portfolio series.

Given my love of socially responsible investing, you might wonder how I could even remotely like McDonald's (NYSE: MCD  ) stock.

The fast-food chain has no shortage of critics. Corporate Accountability International recently called for a "National Day of Action to retire Ronald McDonald," and many activists condemn Mickey D's Happy Meals as wicked tools to market unhealthy food to impressionable children. The documentary Supersize Me, where a dude basically loaded himself up on more McDonald's food than any relatively sane person would regard as good or safe, also gave fast food a bad rap.

Still, some of these stains on the company's image might be historical leftovers from bygone days, even though the company has long since cleaned up its act. In at least a few notable ways, McDonald's can actually be a good corporate citizen.

Making green and going green
Despite the low opinions of its opponents, McDonald's does have major sustainability initiatives under its belt. In fact, in Newsweek's ranking of the 500 Greenest Companies in the U.S. last fall, Mickey D's showed up at No. 79.

McDonald's corporate office employs people who are solely responsible for greening the Golden Arches. In 2009, Fast Company profiled the company's head of corporate social responsibility, Bob Langert, who worked on such goals as eliminating CFCs, recycling polystyrene, buying from sustainable fisheries, and recycling U.K. frying oil into biodiesel.

In addition, Langert was at the helm when McDonald's faced flak from Greenpeace over the company's use of Amazonian soybeans. McDonald's and Cargill made up with Greenpeace by instituting a ban on soybeans from recently deforested areas.

The Golden Arches' dark side
Although McDonald's has done a lot to green up its image, it hasn't completely silenced its critics. Despite the healthier options now available on its kids' menus, the company recently caught flak from the city of San Francisco, which banned its Happy Meals.

And while McDonald's has been trying to improve its environmental reputation, it's hard to ignore cattle's role as a major, flatulent contributor to greenhouse gases. Environmentally minded folks also consider big-business cattle farming a wasteful use of land and water -- a pretty big beef for Mickey D's and its burger-slinging ilk, like Burger King and Wendy's/Arby's (NYSE: WEN  ) , to overcome.

Although the Humane Society of America recently honored companies like Burger King, Subway, and Unilever (NYSE: UL  ) with Corporate Progress awards, McDonald's remains a high-profile hold-out on making the switch to cage-free eggs. (Its stubbornness only extends to the U.S.; McDonald's already uses cage-free eggs in Europe.)

And while the 2009 documentary Food, Inc. certainly boosted "food with integrity" supporter Chipotle (NYSE: CMG  ) , which helped promote the film, it wasn't so kind to McDonald's, portraying the latter company as a major innovator in mass-produced, factory farmed meat.

No for now
Overall, I believe McDonald's is a rock-solid blue-chip stock. It has made major headways in the way it does business, and if people don't choose the healthier options on its menus (or elect to eat less beef), that's their choice, not McDonald's. The company merely responds to consumers' preferences, as its years of excellent performance prove.

Will things change when Wal-Mart (NYSE: WMT  ) begins to make good on its vow to provide cheaper healthy foods like fresh produce in its stores? If enough Americans reject Big Macs to eat healthfully and inexpensively, their choices could put a damper on McDonald's consistently robust sales gains.

McDonald's won't show up in my Rising Star portfolio anytime soon; it just doesn't meet the high standard that I want my socially responsible portfolio's holdings to reflect. Despite its significant and admirable positive steps in improving its corporate citizenship, the company presents too much of a mixed bag to earn my full endorsement.

For investors who don't give a flying McNugget about socially responsible investing, this stock's occasional sins don't mean it's not also a winner. But the blemishes on its image do saddle the company with added reputational and competitive risks.

Am I unfairly tarnishing McDonald's halo -- or not being harsh enough? Take our poll and tell me whether McDonald's is a winner or a sinner. If you have further thoughts, share them in the comments box below.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).

Wal-Mart is a Motley Fool Inside Value pick. Chipotle is a Motley Fool Rule Breakers selection. Unilever and Wal-Mart are Motley Fool Global Gains recommendations. Chipotle is a Motley Fool Hidden Gems choice. Unilever is a Motley Fool Income Investor selection. The Fool owns shares of Chipotle, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned; for more on issues like this one, check out her Rising Star portfolio page or follow her on Twitter @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (14) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 18, 2011, at 1:26 PM, shortnundervalue wrote:

    I won't buy tobacco stock for ethical reasons, so unless you view MCD in the same way, I would focus on keeping emotions out of whether or not to buy (worroed about press coverage). MCD has had bad press off and on, along with a few "postal" incidents, and just look at their chart for any period of time, it is is a 45% climb. Their dividends are generous too, which is probably why they have not split for over 10yrs, but they are reaching the same value as their last split price. However, I wouldn;t count on a split being a sure thing, seems like companies now a days love those high stock prices, like Apple, Google, and even MCD's spin off CMG (which I think they own 60% of).

  • Report this Comment On February 18, 2011, at 4:41 PM, midnightmoney wrote:

    Your writing gets me to wondering what the real Alyce thinks, but alas a life in the public does have us all on our respective fences I suppose.

  • Report this Comment On February 19, 2011, at 12:02 AM, ariolan wrote:

    "...high-profile hold-out on making the switch to cage-free eggs..." Probably little portent on investing, but the whole cage-free eggs....did you ever go to a chicken farm to compare ? Chickens in free-roaming farms are actually worse off, I thought. Industrial chicken-farming is viable only with several thousand chicken being together - a cage reduces these numbers to something manageable with a chicken's brain. The free-roaming chickens I "met" were psycho freak chickens. The caged ones looked allright. Then again. Little portent on investing, yet if ethics is the pitch then one could consider watching the "whole food" sing-a-long with the same scrutiny as the evil industrialized food.....

  • Report this Comment On February 21, 2011, at 4:52 PM, fawncee2 wrote:

    unbelievable, alyce-- really.

  • Report this Comment On February 21, 2011, at 4:54 PM, richie54 wrote:

    Alyce,

    Time to take a trip to China. This stock, this brand is a big winner over there. Same thing will happen to WalMart when they start going on a global expansion trot.

    Better get in while the getting's good.

  • Report this Comment On February 21, 2011, at 5:50 PM, 78rpm wrote:

    Saying that McDonald's merely responds to consumer preferences is like saying that a drug dealer is just giving the customer what he wants. McD spends much research in formulating the most salient offering without regard for consumers' health. Many customers in urban food deserts are not able (by education or age dependency) to discern healthy choices.

  • Report this Comment On February 21, 2011, at 6:13 PM, TruffelPig wrote:

    Well, one can not simply make McDonald responsible for the obesity problem. I didn't blame Marlboro for my cigarette addiction. The idiot was me, not Philip Morris. I stopped a year ago when I woke up to the nightmare seeing lung cancer in a person very close to me.

    I won't buy their stock though because it is really a bad product. There are plenty companies out there, even in the food sector, which have better stuff and socially aware stock buying is possible.

  • Report this Comment On February 21, 2011, at 8:06 PM, midnightmoney wrote:

    TrufflePig,

    Who marketed the damn cigrarettes? You? Who added the addictive substances? Is it your fault that they were available? Is it your fault the advertising was so ubiquitous and effective? No, it wasn't. Your fault lay in weakness (I've got a few of my own) which is precisely what the cigarette companies prey on, addictiona and weakness. These companies are evil and it's ok to say it and to absolve them of any responsibility is simply irresponsible reasoning. As for Mcdonald's, it sells crap. That's what they do. There is hardly any nutrition in the vast majority of their items. They grossly unperpay workers while relatively overcompensating shareholders who are all too glad to take the money that could and in all fairness should be paid to employees. Beyond that the company's environmental record is abhorrent. Proof? Go into a mcdonald's and see how much paper and packaging is thrown out, straight into the garbage. Mcd offers zero to the world on any level, and it's ok to say that, especially when you imagine the good a company with the kind of money they have could do with even minor tweaks to the way they go about their business.

  • Report this Comment On February 21, 2011, at 8:44 PM, lowmaple wrote:

    midnightmoney: There are many companies that take advantage of their employees to be competetive. But I agree they sell crap. In reality they sell salt with food such as chips inside the salt. Of course once they've sold you all that salt you then have too buy the soft drinks to quench that salt and probably are resposible for many cases of diabetes among younger people and for driveing the oldeer crowd to drink adding to the alcoholic problem. So not the best corporate citzen in my estimation.

  • Report this Comment On February 21, 2011, at 10:36 PM, jomueller1 wrote:

    Do not like their food. It's disgusting what they sell as a "bun". Their fries and their coffee are acceptable. As an investor I just wonder why so many people expect so much and yet the stock is creeping lower.

  • Report this Comment On February 22, 2011, at 12:24 PM, ivkovmg wrote:

    New Blog Post on the Wendy's/Arby's UnMerger http://mattivkovich.com/blogs/food-service-industry/the-wend...

  • Report this Comment On February 22, 2011, at 8:24 PM, TexasHammer wrote:

    MCD provides a continuous supply of entry-level jobs, a wide assortment of affordable food, and is a good corporate citizen in the community. BTW,

    it also provides a safe, reliable source of investor income. Special interest groups depend on finding fault with many successful businesses

    (Walmart comes to mind), while real people must keep a job, eat out affordably in a very tough economy, and enjoy one of the few restaurants

    where customers are greeted with smiles and efficient servers. I can tell you that average citizens love MCD in their neighborhoods, and of course everyone has a free choice to go elsewhere with their dollars. Finally, I can think of so many others in the restaurant industry that actually need more critical attention. Perhaps a priority check is in order.

  • Report this Comment On February 23, 2011, at 12:17 PM, astiasti wrote:

    For the record, cows are not flatulent- they are ruminants and therefore incapable of flatulating.

    Horses flatulate- cows do not.

  • Report this Comment On February 23, 2011, at 4:09 PM, TMFLomax wrote:

    Thanks for all the thoughts here. I am enjoying the discussion, which is why I thought this was an interesting question to ask regarding McDonald's.

    midnightmoney, the real Alyce actually does feel very conflicted about this company/stock, as is reflected in the article! I can't say it's not a good investment and I believe it will do well, but view it through the socially responsible lens and there are far more complexities to think about, I think. (And like I said, some of these factors do, in my opinion, add in some risk.)

    TexasHammer, thanks for bringing up jobs, since it does in fact provide a lot of those. That's definitely something to ponder too, when thinking about the pros and cons of this company's role as a corporate citizen.

    Best,

    Alyce

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