Why McDonald's stock has lost a few pounds
McDonald's stock price has really slimmed down.
Shares of the fast food heavyweight have tanked 13.5% to $250.45 in the past six months, badly underperforming the S&P 500's (^GSPC) 5% gain according to Yahoo Finance data. The Dow Jones Industrial Average (^DJI) — which has counted McDonald's as a member since 1985 — is off slightly during the same timespan.
Zoom out, and you will see the selling pressure in McDonald's (MCD) the most acutely in the last three months — shares have dropped 15.2%.
The stock hit a 52-week low of $246.19 on Oct. 12.
"You have to go back more than 20 years … all the way back to the 2002 lows … to find a time when McDonald's was more oversold on its RSI [Relative Strength Index] chart than it was at its early October lows!" Miller Tabak chief market strategist Matt Maley told Yahoo Finance by email.
So what gives with the often safe-haven play in McDonald's? This is usually a blue chip stock that investors eat up when the world becomes more volatile, as is currently the case with fresh Middle East tensions.
Blame Wall Street's obsession with the longer-term impact of weight loss drugs (formally known as GLP-1 drugs) such as Ozempic on companies that sell anything with extra sugar, extra fat, and extra processed ingredients.
The sell-off has blasted shares of everyone from McDonald's to soda kings Coca-Cola (KO) and PepsiCo (PEP) to Slim Jim selling Conagra Brands (CAG).
Indeed the concern in the marketplace isn't totally misplaced.
Data from IMS/IQVIA suggests around 10.6 million shots of obesity drug doses were officially sanctioned by Novo Nordisk (NVO) and Eli Lilly (LLY) in the US in May 2023.
Dividing this figure by 4.5 weeks in a month suggests that the user base was around 2.4 million adults in May.
"The concerns surrounding the impact that the weight loss drugs will have on [McDonald's] has caused its stock to drop," Maley contends.
While the sell-off in the Golden Arches has been brutal for the bulls, the Street has been hesitant to toss in the towel and serve up rating downgrades.
"The recent weakness of the MCD stock screams unfairness. After all, many investors bought the stock for its resilience under any macro scenarios and protection against market volatility," said Citi analyst Jon Tower in a client note.
Analysts like Tower point to several favorable attributes to the McDonald's business model that may be getting lost in the intense focus on weight loss drugs.
They include a mostly franchised business model that lends itself to higher profit margins, efforts by management to accelerate the opening of new restaurants, and a push to digital in drive-through orders and on mobile devices.
Adds Tower, "While the GLP-1 risk is hard to measure, the current multiple may not fully reflect McDonald's wider appeal led by greater digital, delivery and drive through investments coupled with more craveable options and improved marketing execution."
Whether investors will view a discounted McDonald's stock as craveable before year end, the verdict is out.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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