McDonald's shares look dollar-menu cheap
It just goes to show that a well-run company selling cheap food to cash-strapped consumers can do very well in a global downturn. The market naturally rewarded Mickey D's performance by gobbling up shares like a Big Mac with fries.
True, it's never ideal to initiate or add to a position when a stock is popping, but after McDonald's third-quarter earnings report? Well, we're loving it.
Even with today's action shares still look like a bargain by a number of relative valuation measures. On both a forward and trailing price/earnings basis, the stock offers discounts of more than 25 percent to both the S&P 500 ($INX) and the company's own five-year average, according to Thomson Reuters. The same goes for the price/earnings-to-growth ratio, which measures how fast a company's stock is rising relative to its growth prospects. On that basis shares offers discounts of about 15 percent to its own five-year average and more than 25 percent to the broader market.
Finally, add the tempting 3.7 percent dividend yield to analysts' average price target of $65.44 and you get an implied upside of nearly 13 percent over the next 12 months or so. That's pretty compelling for a blue-chip dividend payer whose shares look about as cheap as the items on its dollar menu.