Even as we “return to normal,” I can see why some are skeptical about McDonald’s (NYSE:MCD) stock. The novel coronavirus took its toll on the company’s operations, which sent MCD stock to multi-year lows. Shares have somewhat recovered (rising from $124.23 per share to around $189 per share). But, they still remain below their past 52-week high ($221.93 per share). Yet, fears that the “Golden Arches” won’t fully recover from this are completely overblown.
How so? Firstly, sales are quickly bouncing back. With U.S. same-store sales in May down just a few percentage points year-over-year, the fast food giant is making a fairly quick recovery. And that’s no surprise. Unlike other hard-hit industries, getting demand back to pre-pandemic levels is less of a challenge.
Airlines and cruise lines may continue to struggle, as the public remains fearful of a “second wave.” Retailers may have a tough time as well, as the economic impact of the pandemic means households continue to tighten their belts.
But McDonald’s? As a low-cost dining option, with fewer social distancing hurdles than other types of high-traffic businesses, they could rebound much quicker than the rest of the overall service economy.
With this in mind, buying MCD stock today, while shares remain weak, is a no-brainer. As the fast food giant gets back to 100%, shares will quickly retrace past highs. And, given the company’s long-term strengths, shares could head even higher.
In short, today’s hiccups are an opportunity. Don’t miss your chance to buy on today’s weakness.
MCD Stock and a Swift Recovery
As I mentioned previously, the company’s sales are still below the high-water mark. May sales numbers were still down year over year. Yet, in the U.S., the decline was minimal (5% drop). Granted, worldwide sales remain far below prior levels (21% sales decline year over year). However, many countries outside the U.S. had more strict lockdown provisions (such as no drive-thru/delivery services allowed).
As McDonalds’ other key markets start to reopen, expect similar results. In places in Europe that have reopened, we have already seen this. For example, back in April, locations in France and Austria saw miles-long lines when their drive-thrus resumed operations.
Yes, there’s a chance some of this pent-up demand will be short-lived. But, I believe it’s a bit of exaggeration to suggest that sales could bounce back temporarily, then continue to be depressed.
Why? As I said above, McDonald’s faces fewer hurdles as it returns to “business-as-usual.” Unlike getting on a plane, there are fewer social distancing provisions to contend with. Yes, you may have to put on a mask if you want to go inside and order a Big Mac. But, other than that, the customer experience hasn’t changed that much.
Also, more importantly, there’s the cost factor. A plurality of Americans believe the economic situation is getting better. But a majority believe things haven’t changed, or are getting worse. With so many perceiving tough times are set to continue, they’re going to seek out low cost substitutes as they tighten their belts. And, just like how Netflix (NASDAQ:NFLX) is a low-cost entertainment alternative, McDonald’s offers a low-cost dining alternative.
Long-Term Strength Remains
It’s obvious we could see a swift recovery with McDonald’s stock. But, this is far from being a short-term trade. Why? This remains one of the best long-term large-cap companies in the world.
How so? Strong brand equity and economic moat, high-margins and a safe, solid dividend are just some of the reasons why this is a high-quality stock.
But that’s not all! As the largest fast food chain in the world, the company could gain more ground in this “winner-take-all world.”
Before the pandemic, McDonald’s faced sluggish sales growth, especially in the United States. But, coming out of the pandemic, the chain could use the crisis as an opportunity to grab market share from rivals Burger King — parent company Restaurant Brands International (NYSE:QSR) — and Wendy’s (NASDAQ:WEN).
In short, put the company back on the growth train. Not only will this help bring shares back to their pre-pandemic price. It could also helps bolster MCD stock’s valuation, sending it to even higher prices than what we saw before the outbreak.
Buy McDonald’s on Today’s Weakness
You may have missed out buying this long-term winner at its lows. But, even now, shares are a screaming buy, as some weakness remains. There is still some skepticism whether we’ll see a quick return to normal for the fast food giant.
But, as seen from May’s sales numbers, things could get back to “business-as-usual” much sooner than with other hard-hit industries. And with shares still 17% below their pre-pandemic highs, shares remain a steal.
Just don’t expect this discrepancy to last for long. Buy MCD stock now, before this discount disappears.