McDonald's: Time to Bite?

02/19/2015 7:00 am EST


For this featured recommendation, we are turning to one of the more unpopular stocks we own at this time—a global leader in fast food restaurants—notes value investor Russ Kaplan, editor of the Heartland Advisor.

McDonald's (MCD) has had falling revenues and a falling stock price for the past year due to its menu’s decreasing popularity. However, McDonald’s is not the kind of company to sit on their hands when changes are needed.

Indeed, I believe the company is beginning to turnaround. Activist investors such as Bill Ackman—who’s Jana Partners Hedge Fund Partners purchased a total of 842,000 shares in November of 2014, with an option to buy 200,000 more—have started to take action.

In a surprise move, McDonald’s fired its Chief Executive, Don Thompson and replaced him with Steve Easterbrook. This caused the price of McDonald’s stock to go up sharply.

I believe that a major problem with McDonald’s is that it lost its way by expanding its menu and making it too complicated in an attempt to cater to the more health conscious consumers.

Signs are that Easterbrook will move the company back to its core values and concentrate its menu on the products that made them famous and realize that certain groups—such as the health conscious and more affluent consumers—will not buy its products. 

A certain type of customer, which may or may not include you or me, does like its products and will patronize the slimmed down and more simplified menu McDonald’s offers.

In addition to Bill Ackman, remember that Warren Buffett's Berkshire Hathaway owns 30.2 million shares and shows no sign of selling any.

If you don't own McDonald’s, this is a good time to get in. You will collect a high dividend while you wait for the price of the stock to rise.

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