When asked to choose a favorite blue-chip stock, I decided on one that I probably wouldn't have even considered a couple of years ago: McDonald's
I'm not usually the type of investor who naturally gravitates toward large caps. Many large-cap companies seem well on the verge of being slow growers, if they're not already. Competitors start breathing down their necks, bringing all sorts of innovations (sometimes downright disruptions) meant to hobble the dinosaurs. Such companies often become so big that they can't move quickly anymore. And sales growth inevitably slows -- gotta love that law of large numbers.
However, McDonald's is compelling because it's got a blue-chip reputation and some pretty impressive recent growth. It has pulled off a great turnaround, where it appears it has not only repaired but rejuvenated its business. Bon appetit.
What a year!
Shares of McDonald's, old-school though the company may be, have appreciated 24% over the last year. The company's been repurchasing its stock, and further delivering value back to shareholders with one heck of a meaty dividend. Some might call McDonald's fries fattening, but in the investing sense, the company's been more about fattening rewards recently. It has also spun off its interest in success story Chipotle Mexican Grill
Although there were some concerns earlier this year, it seems McDonald's is now firing on all cylinders. For example, worries about its fortunes in Europe seem to be alleviated. In its last quarter, European sales jumped 8% (excluding currency effects). Latin American markets were another bright spot -- sales in that segment increased by 20%.
McDonald's has done plenty of innovating in its menu options. It seems that a greater emphasis on higher-quality coffee is helping in its breakfast rush. (In some regions of the U.S., it provides Green Mountain Coffee Roasters
In more proof that McDonald's has turned around its business, in its latest quarter, it reminded us that it has enjoyed 41 months of same-store sales increases. That's a pretty impressive showing, and illustrates that McDonald's has definitely been in consumers' good graces.
It's true, McDonald's faces a lot of competition from fellow burger-slingers Wendy's
Hungry for more Mickey D's
Honestly, I don't often eat at McDonald's, although I understand the appeal. Though I try to avoid fast food in general, every once in a blue moon, I do succumb to its swan song of its quick, cheap fare. (Imagine me sneaking into my apartment with my McDonald's bag as if it's ill-gotten gains.) However, it doesn't matter what I think, because in truth, many, many people love fast, inexpensive food, particularly from McDonald's. And from an investing standpoint, McDonald's has been delivering on many different levels.
Given McDonald's recent vow that its growth strategy is to not only be bigger, but better, it seems the company's getting smarter, too.
Will McDonald's be the best blue-chip investment for the next year? I suspect it will, and that's why I marked it as an outperform in Motley Fool CAPS, our new community intelligence database, last August -- and it's one of my winners thus far. Do you agree -- or disagree -- on McDonald's? Click here and let us know. We'll declare the best blue chip of 2007 next week, based on your thoughts as recorded in CAPS.
To read about the rest of our blue-chip candidates, click here.
For more Foolishness, see the following articles.
- McDonald's recently announced a really juicy dividend. If dividend investing sounds like a tasty prospect, find out the secret of dividends, or learn how to save yourself from massive losses.
- Revisit McDonald's most recent appetizing quarter.
- About those fattening rewards again .
Starbucks is a Motley Fool Stock Advisor recommendation.