McDonald’s Corporation (MCD) Churns Higher on Improved Margins Abroad

In China, McDonald’s has its hands full after the ‘tainted chicken scare.’  In the U.K. Burger King will have to fend off the PR nightmare that is finding horse meat mixed in with the beef used in its patties. Although McDonald’s and Yum Brands have been cleared of these charges, the American food chains are still facing negative reviews from both the media and the general public, and this could cause a temporary dip in revenues. Nonetheless, China remains an integral part of McDonald’s growth strategy, and the fact of the matter is McDonald’s hasn’t done anything wrong.  Things like this always feel politically motivated.  The U.S. and China have been playing tit-for-tat in trade war and tariff spat rhetoric for the past couple of years as both engage in predatory monetary policy.

The company aims to spend $3.2 billion on opening 1,400 to 1,600 new stores around the world. Out of this, 700 new outlets will be opened in China by the end of the year, taking its store count to 2,000 in the country.  Moreover, there are rumors floating around here that McDonald’s will be opening up its first store in Vietnam later this year.  The U.S. and European markets will be marked by low growth and shallow profits.  This year’s cattle herds are the smallest that they have been in the U.S. in nearly 60 years as cattle futures have hit an all-time high on the COMEX at $1.33 per pound recently.  This, along with the rising price of oil and other commodities, including grains, is going to weigh heavily on all of the QSR’s bottom lines in 2013.  The Federal Reserve is inviting price inflation in the U.S. and conditions are ripe for them to get their wish.  The effects of that inflation will be felt first in commodity prices.

I would be wary of all of the QSR stocks right now, believing they are fully-valued, especially in the face of higher corn, soy and beef prices, which will have a knock-on effect into chicken prices.  Wheat price gains should be tamer this year with increased exports out of countries like India, which makes Domino’s Pizza, Inc. (NYSE:DPZ), a company I’ve had an open long-call on for more than a year, expansion plans across Asia interesting.  India is a particular focus for Domino’s right now.

That said, however, McDonald’s stock just gave a long-term buy signal and its strong expansion plans, unmistakable brand and excellent supply chain management put it in a very good position to succeed in emerging markets like Southeast Asia over the next few years.  Moreover, in a weak U.S. dollar environment, foreign exchange gains should offset some food-related costs.

The article McDonald’s Churns Higher on Improved Margins Abroad originally appeared on Fool.com and is written by Peter Pham.

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