McDonald’s Corporation (MCD), The Wendy’s Co (WEN), Burger King Worldwide Inc (BKW) – Fast Food: One to Own, One to Consider, One to Avoid

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Revenue and same-store sales declines give me pause, as does the heavy debt load, but Burger King Worldwide Inc (NYSE:BKW) seems to be in reasonably good shape. Given the P/E ratio, I think the stock is a bit overpriced, but it is definitely worth a second look.

McDonald’s

No discussion of cheap burger chains is complete without McDonald’s Corporation (NYSE:MCD), the 800-pound gorilla and industry leader. NASDAQ reports analyst consensus of an estimated EPS of $5.71 for 2013, which indicates a forward P/E in the high teens assuming a share price of around $100.

To my mind, McDonald’s Corporation (NYSE:MCD) has it all: a steady, sustainable dividend yielding about 3%, low debt, a reasonable P/E ratio, and revenue growth since 2009. There is still room to expand internationally — although perhaps not in the United States — and McDonald’s is continually refreshing its menu choices with new items. Even if revenue remains flat for the next several years, management can support shareholders with dividend hikes and share repurchases, making this a safe, defensive income stock.

I don’t expect fireworks from McDonald’s Corporation (NYSE:MCD); it isn’t a growth stock like 3D Systems. Nonetheless, I view it as a good, safe investment vehicle that will generate a solid return (somewhere on the order of 10-15% annually) over the next several years. The valuation is a big piece of this; despite being in the best financial shape of the three stocks listed above, McDonald’s Corporation (NYSE:MCD) trades at the lowest forward P/E ratio. When the market pulls back, many investors will be looking for safe, defensive stocks like McDonald’s Corporation (NYSE:MCD). Make sure you get in before they do!

The article Fast Food: One to Own, One to Consider, One to Avoid originally appeared on Fool.com and is written by Michael Douglass.

Michael Douglass has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide (NYSE:BKW) and McDonald’s. The Motley Fool owns shares of McDonald’s. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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