Why McDonald's Couldn't Stop the Dow's Plunge


U.S. investors may have gotten used to the idea that election results can be predicted months in advance, but today's Italian election results gave another example of how you can't trust exit polls. Despite indications this morning that a pro-austerity coalition might win the day, those hopes were later quashed by a better-than-expected showing from Silvio Berlusconi, once again throwing the future of the European economy into question. Combined with rising concerns about automatic spending cuts set to take effect in the U.S. this Friday, the Dow Jones Industrials put in their worst performance of the year, plunging 216 points, with the S&P 500 sinking closer to 2%.

Even with the big drop, some Dow stocks advanced. McDonald's put in the best showing, rising above the European turmoil to gain 1%. Investors may be looking back to 2008, when McDonald's was able to endure economic problems to post gains even in a sharply lower bear market that year. Yet with the popular dividend stock fetching a fairly expensive earnings multiple, McDonald's doesn't have the same margin of safety it did five years ago, especially with a rising dollar potentially pressuring earnings.

Elsewhere, Zynga soared 7.5%. The company moved forward with some strategic moves to cut costs, closing down its offices in Baltimore in order to improve efficiency. Of even more potential value to Zynga was Nevada's decision to legalize online gambling. It'll take more than a single state to make a sizable difference for Zynga, but the move is a step in the right direction.

Finally, Barnes & Noble climbed more than 11% after Chairman and Founder Leonard Riggio said he would like to acquire the bookstore and website-sales segment of the company's business. What Riggio doesn't want, though, is the company's Nook tablet business or its textbook-selling segment. With Microsoft having made a deal with Barnes & Noble to create a Nook subsidiary, it may be easier from a corporate-structure standpoint for Riggio to get his proposed deal done.

Can McDonald's keep climbing?
Today's move for McDonald's makes up for part of the stock's terrible 2012 performance. Find out whether McDonald's can serve up better results by reading our premium research report on the stock, in which our top restaurant analyst sheds light on whether McDonald's is a buy at today's prices. Click here now to read the report today.

The article Why McDonald's Couldn't Stop the Dow's Plunge originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends and owns shares of McDonald's. It also owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published