McDonald's Not-So-Secret Weapon

The fact that McDonald's (MCD 1.32%) is so big means that its days of growing like a weed are long gone. That's not surprising. When your market cap is almost $100 billion, it's really tough to move the needle.

It's true that the company isn't likely to book sales growth as high as Chipotle's (CMG 0.53%) 8%, or even to match Panera Bread's (PNRA) 6%. But McDonald's size does convey an advantage that's so obvious it tends to get overlooked: The fast-food titan can invest in future growth like no other restaurant can.

This is disappointing?
Take the fiscal year that McDonald's just closed the books on. The company turned in a "disappointing" 2% sales growth. After logging its first monthly comp decline since 2003 in October, McDonald's pulled off a flat fourth quarter. Altogether, global comps increased by 3.1% for the year, bringing sales to $27.5 billion.

That's not great. In fact, it was the lowest annual growth the company has seen in years. And it's nearly half the 5.6% comp boost from 2011.

Still, as a shareholder, I'm not complaining. McDonald's managed to generate $8.6 billion in operating income off that sales figure. Those profits also funded the return of $5.5 billion to shareholders in the form of dividends and stock repurchases. And just as it has for years, the company acted like a compounding machine in 2012. It flipped $0.20 of every revenue dollar into profit, on its way to logging $5.5 billion in net income.

Capital investments
That sizzling financial performance gives Mickey D's a lot of space to fund future growth from current cash flows. We're talking redesigned interiors that boost check averages, and new restaurants that extend the geographic reach of the brand.

For 2013, the company plans to plow a massive $3.2 billion into opening another 1,600 locations worldwide, while modernizing about the same number of existing stores.

Here's a look at how that level of investment stacks up against other companies in the space:

Source: Company financial filings.

Competitor Yum! Brands is the only company that comes close, and it still reaches less than one-third of McDonald's fortress-creating moat of investing. Yum! has been ramping up expansion plans lately, particularly in China. It opened 900 new restaurants outside the U.S. in 2011 and about 400 international locations last year.

And Yum! has been pushing more and more into McDonald's turf. Taco Bell's challenge against the Golden Arches' popular value menu is just the latest example. But while the two companies fight each other over pennies in a value meal, the long-term battle is happening on a much bigger scale. As in billions. And McDonald's has the clear advantage there.

More bold than a McRib
It's also clear that the company's management isn't having trouble finding growth opportunities ahead. Instead, McDonald's investment plans are getting bolder.

A year ago, after closing out a great 2011, the company said it expected to spend $2.9 billion in a bid to add 1,300 locations and modernize thousands of existing stores. McDonald's is starting 2013 on a weaker note. Yet this year's plan takes that $2.9 billion bet and raises it, calling for an additional 10% investment into opening up 23% more restaurants than were added last year. And CEO Don Thompson isn't hedging at the size of that outlay, saying, "now is an opportune time to invest in our restaurant portfolio."

An extra value
That's the same type of question facing investors: Is now an opportune time to invest in McDonald's?

I think it is. At less than 18 times earnings, the company looks like a value compared to the overall market, and compared to Yum! Brands' P/E of 19. Add in the 3% dividend that shares are yielding now, and it's even harder to turn down. McDonald's won't be booking splashy growth figures in the high single digits. And the stock may get even cheaper, if expectations aren't hit in the quarters ahead. But patient investors can follow the company's example and focus on the long-term. McDonald's has shown just how powerful that strategy can be.