Best Blue-Chip Buy: McDonald's, P&G, or Exxon?

In this Motley Fool series, we rank three related stocks on five criteria to determine the best buy.

Today's matchup is a knock-down, drag out among three quite different blue chip stocks: fast-food king McDonald's (NYSE: MCD), maker of everything from Tide detergent to Gillette razors Procter & Gamble (NYSE: PG), and oil and gas dominator ExxonMobil (NYSE: XOM).

By using five short-of-scientific-but-carefully-chosen criteria, let's determine which of these three plays is the best buy (assuming we have to buy one).

Round 1: Balance sheet
Maybe this'll surprise you; maybe it won't. Exxon is the winner here. As even the United States gets downgraded, Exxon is one of only four triple-A rated stocks left. McDonald's and P&G are no slouches, though. McDonald's carries the most debt vs. capital at 45%, but it easily covers its interest payments. Not surprisingly when we're talking blue chips, we're picking the best among very strong contenders. Rank: (1) Exxon, (2) P&G, (3) McDonald's.

Round 2: Operations
To rank these very different companies, we'll use return on equity (ROE). Here, McDonald's wins with an impressive 37.4% ROE. It also has the strongest net margins of the group. Exxon delivers an ROE of 25.3% and P&G clocks in at 18.2%. Again, all in the good-to-great range. Rank: (1) McDonald's, (2) Exxon, (3) P&G.

Round 3: Sexiest bet
This one's a tough one. None of these is a whiz-bang tech stock or blockbuster pharma play. Perhaps you'd argue that Exxon is the sexiest of the bunch because of the volatility of energy prices.

You could also argue that McDonald's, like competitor Yum! Brands (NYSE: YUM), has international growth prospects that make it especially alluring.

Fair enough, but for this one I'll go with analyst estimates for five-year growth. It's not the greatest arbiter in the world, but it'll do.

Here, McDonald's comes out on top with a 10% growth estimate. P&G clocks in at 8.9%. And Exxon is at 7%. This is also their growth rank for the past five years of actual growth, so ...

Rank: (1) McDonald's, (2) P&G, (3) Exxon.

Round 4: Safest bet
As BP (NYSE: BP) showed us in the recent past, Big Oil can hit big problems very quickly. Exxon showed us the same thing years ago with the Exxon Valdez spill off the coast of Alaska. We have to bump that against Exxon's rock-solid balance sheet, its reputation for smart capital allocation, and its history of returning capital to shareholders through buybacks and dividends. It does trade at the lowest multiples of the bunch, too.

McDonald's faces an increasingly health-conscious public, but it's been responding with healthier fare. Although it'll never have the perceived reputation of its spin-off Chipotle (NYSE: CMG) or Subway, it's a smart company that I believe will be paying dividends well into the future.

But the safest bet of the bunch is probably Procter & Gamble. Similar to its competitor Colgate-Palmolive (NYSE: CL), its group of consumer brands has a strong moat built over decades of customer courting. For safe, it's hard to beat that.

Again, we're talking blue chips here, so there's strength all around. You could argue for putting Exxon higher because of its relatively cheaper current valuation, but ...

Rank: (1) P&G, (2) McDonald's, (3) Exxon.

Round 5: CAPS rating
Our CAPS community loves all three stocks. Procter & Gamble and McDonald's rate five stars out of a possible five, while Exxon grabs four stars. P&G beats McDonald's when we look into the detailed rank.

Rank: (1) P&G, (2) McDonald's, (3) Exxon.

The summary rankings

There you have it. McDonald's and P&G tie to beat out Exxon. I know I'm in reruns as I say this, but all three have amazing businesses. In fact, I own shares of both Exxon and McDonald's, and P&G is high on my watchlist if the market doles out a bit of a discount.  

Note that each of these stocks pays nice dividends, something you probably want in a blue chip. P&G and McDonald's are at 3.2%, while ExxonMobil is at 2.4% (with heavy historical share buybacks). For some more stock ideas, check out our most popular free report: "13 High-Yielding Stocks to Buy Today." In it, you'll find a company that one of our retail analysts calls "a dividend play for a lifetime." Hint: It's one of these three companies.