TAKING STOCK: Politics and McDonald's


Dear Mr. Berko:

You've never expressed your political opinions. Some of us had hoped you'd comment on Donald Trump's presidency. You've made many pointed comments about the House and Senate, but you have never commented about our country's political direction. I and others in my area would like to read your comments.

Next question. My stockbroker recommended McDonald's. My spouse and I like its food and new service. Please give us your opinion on a 200-share purchase for each of our conservative individual retirement accounts. We both are 57 and have about 10 years before we begin taking distributions from our accounts.

-ND, Springfield, Ill.

Dear ND:

This is a financial column, not a political column. This column doesn't do politics. I may criticize politicians, from both parties, for things they have or haven't done, but I won't take sides on political philosophies, local political races or national elections. Politics can be too much like religion; we can't reason someone out of an idea he hasn't been reasoned into.

During the past 40-plus years of writing this column, I've met hundreds of politicians (county, state and federal) at various venues, and I usually have a few minutes of scripted conversation with them. Several days later, like clockwork, I'll receive a warm letter that says the politician enjoyed our too short visit. And a week later, his major-domo will invite me to lunch with the politician, who, when dessert is served, wants an endorsement from me. Congress today is like the Tower of Babel. Members of Congress consider graft, payola, lies, personal enrichment and sexual harassment to be entitlements and necessary for success. This deportment is a precursor to immense wealth-and I've never met a congressperson who wasn't worth at least $1 million. So when a reader tells me that his kid wants to make big money and asks what profession the kid should pursue, I always recommend a political office (if the kid lacks the brains to be a doc or a lawyer) because that's where the big bucks are.

Restaurant stocks have suffered a mixed performance over the past dozen months, and many well-recognized restaurants-such as The Cheesecake Factory, Red Robin, Chipotle, Dave & Buster's, BJ's and Fiesta Restaurant Group-have tripped and stumbled. That's despite a healthy operating backdrop. (The stock market has made record highs. Unemployment has been making new lows. The gross domestic product is growing.) Weak mall traffic has had a rippling effect on customer visits. Health-conscious diners are cooking at home. Lunch visits are hurt by the rise in telecommuting. Labor costs and worker benefits are rising. And food costs are increasing. Some issues-such as BJ's, Brinker International and Sonic Drive-In-may be good recovery candidates. Still, I'd rather own a winner such as McDonald's, believing the shares will continue to rise in price, than buy a fallen angel such as Shake Shack, Papa John's Pizza or Red Robin and hope its shares go up.

Several weeks ago, for a charitable fundraising meeting, I purchased $107.36 worth of Big Macs, cheeseburgers, fries, shakes, Cokes, fish sandwiches et al. from a neighborhood McDonald's. And wonder of wonders, nothing was missing from anyone's order. So I like McDonald's (MCD-$158), though its revenues have declined each year since 2013, from $28 billion to an expected $21 billion this year. But even on lower and lower revenues, share earnings set records each year. This is a result of improving net profit margins. The industry average is 6 percent, and MCD is expecting 24 percent this year and 28 percent in 2019. And management thinks 31 percent is possible in 2021. Those numbers are up from 15 to 18 percent in previous years and reflect a superior management team. This rise in net profit margins is because of lower labor costs (now we can order our food via computer rather than via employees), portion controls and better training, which improves employee efficiency.

Besides Dunkin' Brands, no other restaurant has net profit margins in the high 20s. MCD's $4.04 dividend yields 2.55 percent, and that dividend has increased by more than 8 percent annually over the past 20 years. Credit Suisse, Argus Research, Barclays, Nomura Securities and Standard & Poor's have "buy" recommendations on MCD, and I agree.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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Published: Tue, Apr 03, 2018