We recently published a list of 11 Best Fast Food Stocks To Invest In Right Now. In this article, we are going to take a look at where McDonald’s Corporation (NYSE:MCD) stands against other best fast food stocks.
Fast food is integral to American culture and remains popular among adults and children. According to a report by the CDC, one-third of Americans consume fast food every day, while 83% of the country’s families dine out at a fast food restaurant at least once a week. Around 45% of the population aged between 20-39 consume fast food every day, while the indulgence rate of those between 40-59 years of age is slightly lower at 37.7%. On the other hand, 34% of children regularly eat fast food daily.
READ ALSO: 7 Cheap Food Stocks to Buy According to Analysts.
However, an increasing number of Americans are beginning to pull down on their consumption and eating less fast food per week due to high prices. A survey by Lending Tree in May 2024 highlighted that about 78% of the citizens consider fast food a ‘luxury’ after rampant inflation in the country has forced Americans to reassess their spending habits. Surge pricing in restaurants has also added to their worries, with about 72% confessing that they would prefer having fast food during discount hours.
Over the past year, menu prices have risen considerably in the US across the wider restaurant industry, driven by increased commodity and supply chain costs. This has boosted consumer desire in the country to eat at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
Despite challenges, the American restaurant industry remains resilient, primarily because it adapts well to changing consumer habits. The National Restaurant Association has forecast sales to top the $1 trillion mark in 2024 for the first time. It also expects the industry to create 200,000 new jobs, citing what is generally a strong demand from Americans to eat at restaurants.
A restaurant ETF issued by AdvisorShares, which invests exclusively in the restaurant and food industry has gained 18.32% YTD, outperforming the broader market by over six percentage points, as of the close of October 31. The Fed rate cuts will likely help restaurant stocks as they would to the broader market. The low cost of borrowing will boost consumer spending and ease the burden on restaurant owners, allowing them to go ahead with their expansion plans.
In September this year, the Federal Reserve announced a 50-basis point rate cut – the first since March 2020 – to lower the range of interest rates from 4.75% to 5%. Details emerging from the minutes of the September meeting disclosed a ‘substantial majority’ of central bankers backing the cut, which has raised optimism among investors for further cuts ahead in the November meeting.
Another encouraging recent trend has been the downturn in the country’s inflation, which dropped to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate.
A cook in a busy kitchen assembling cheeseburgers for orders.
Our Methodology
We used Finviz’s restaurant industry screener to sample stocks for this article and then identified the companies that dealt with fast food. Among them, we picked the top 11 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 67
McDonald’s Corporation (NYSE:MCD) is one of the most popular fast-food chains in the world. The American multinational company operates in approximately 40,000 locations across over 100 countries. According to CNBC, around 95% of its restaurants are owned by independent local business owners.
2024 has been a tough year for the company. The brand’s boycott, sparked by the conflict in the Middle East, has affected its same-store sales and subsequently hurt its earnings. Sluggish consumer spending across the world has also not helped.
The recent E. coli outbreak linked to its Quarter Pounder hamburgers, which has already infected 75 people in the US, is a fresh setback for the company. Customer visits to McDonald’s Corporation (NYSE:MCD) have dropped by 9% nationwide, CNN reported on October 29. However, the fast-food chain is confident that its $5 value meals and chicken burgers will win back customers.
Last week, McDonald’s Corporation (NYSE:MCD) announced financial results for the fiscal third quarter of 2024. Global comparable sales dropped 1% year-over-year in Q3 – the biggest decline in four years and more than twice the magnitude projected by analysts. This was preceded by a 1% drop during the April-June quarter, marking two successive quarters of contraction. While markets in the United States returned to growth (0.3%) during the quarter, sales were down by 2.1% in international markets, led by France and the UK. Net income for the quarter was $2.26 billion, dropping 3% from last year. However, its earnings per share of $3.23 beat expectations by three cents.
Looking ahead, McDonald’s Corporation (NYSE:MCD) expects challenges to remain heading into 2025. However, the executives are confident that the E. Coli outbreak will not have any material impact on the business. They are also hopeful that their promotional value meals would lure customers back to the burger chain. Wall Street analysts also expect the stock to bounce back once the headwinds are over. They have a consensus Buy rating on MCD, with a median share price upside potential of 11%.
Despite pressures, McDonald’s is the best fast food stock to invest in right now, according to hedge fund sentiment. As of Q2 2024, 67 hedge funds, amongst those tracked by Insider Monkey, had investments in the company.
Overall, MCD ranks 1st among the 11 best fast food stocks to invest in right now. While we acknowledge the potential of fast food companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MCD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
