McDonald’s (MCD) may seem like an unconventional choice for our top restaurant pick. Stagnant traffic trends in 2019 have called into question the lasting efficacy of the company’s various “velocity drivers”, including its “Experience of the Future” store formats, digital ordering, and delivery.
Competition remains fierce, with several rivals seeing strong comparisons from plant-based burgers and premium chicken sandwiches, and promotional activity is likely to escalate into 2020. On top of this, the company recently had a high-profile management change, with McDonald’s US head Chris Kempczinski assuming the chief executive reins from Steve Easterbrook in November.
While these factors are investment considerations, we still see several reasons McDonald’s should be on investors’ radar screen heading into 2020. Our confidence stems from new technology investments (particularly at the drive-thru), menu innovation plans, a recession-resilient brand, strong cash return qualities, and an underrated management team. Results could be choppy through the management transition in the first half of the year, but ultimately, we believe there are several positive catalysts at the forefront. In our view, the shares are enticing, at more than a 10% discount to our valuation.
Here are 10 reasons to consider investing in McDonald’s in 2020:
1. It has an unknown yet underappreciated leader
The sudden departure of Steve Easterbrook in November raises natural questions about McDonald’s leadership under new chief executive Chris Kempczinski, who is not well known by investors. However, we believe Kempczinski is a more than capable leader who will continue (and build upon) many of the technology initiatives put in place while embracing new menu innovations that alleviate current franchisee concerns.
2. It is seeing growth pick-up
With negative comparable transaction growth in 2019, it’s not surprising that franchisees and the broader market have called into question the efficacy of what McDonalds calls it “Experience of the Future” investments. But it takes time for consumers to adjust to new technology changes, and we’ve started to see McDonald’s outperform restaurant industry traffic averages the past few months.
3. It is transforming the drive-thru experience
In 2019, McDonald’s acquired Dynamic Yield a company specialising in “personalisation and decision logic technology” and Apprente, a voice-based conversational artificial intelligence platform. These two acquisitions should not only help McDonald’s reinvent its drive-thru experience but also unlock new transaction and ticket opportunities through digital and kiosk ordering over the next several years.
4. It is unlocking new restaurant formats
New technologies should enable McDonald’s to refine its future real estate strategy and unlock the potential for smaller-format mobile pickup or delivery hub locations. We see several benefits from such a strategy, including more consistent transaction growth and deploying McDonald’s own delivery capabilities while reducing its dependence on third-party services (such as Just Eat).
5. It is growing its delivery business
We forecast that McDelivery as a percentage of sales will more than double over the next 10 years, from 4% in 2019 to almost 9% in 2028. As delivery becomes a more meaningful contributor, we expect a positive impact on comparable traffic and ticket trends while potentially allowing McDonald’s to explore its own in-house delivery service (and reducing its dependence on third-party aggregators).
6. It is changing its menu
McDonald’s largely missed out on the two most significant US menu trends in 2019: plant-based burgers and premium fried chicken sandwiches. While we don’t anticipate the same level of comp benefit that Burger King and Popeyes enjoyed from new product launches in 2019, we believe McDonald’s will see contribution from new product launches in these categories in 2020.
7. It is growing its presence in China
McDonald’s has had uneven results in China, but we believe the sale of its assets in China and Hong Kong to a consortium led by CITIC and Carlyle has greatly improved operations in the region. With stores generating stronger unit economics, improved digital capabilities, a loyalty program of more than 100 million members, and opportunities for smaller-format locations, we expect China restaurant openings to steadily increase over the next 10 years.
8. It is recession-resistant
We’re not forecasting a recession in the United States in 2020, but we believe it’s reasonable to expect a deceleration in industry growth trends amid difficult comparisons and the potential for asset market volatility. McDonald’s tends to outperform in periods of slower economic growth, and we believe that will be the case again in 2020.
9. It is reasonably priced
With the restaurant industry fairly valued at current levels and facing potentially slowing growth rates in 2020, investment opportunities are scarce. Nevertheless, we believe McDonald’s offers the best risk/reward profile in our coverage list on top of unique technology, menu, and capital allocation catalysts.
10. It is investing in itself
As it successfully wraps up its 2017-19 cash return goals of US$22 billion-US$24 billion, we believe McDonald’s management will unveil new capital allocation plans in early 2020. While we don’t expect the company to quite reach the same level of cash return over the next three years, we expect an acceleration in dividend per share growth to the low double digits over the next few years, which should satisfy income-oriented investors.
The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person’s sole basis for making an investment decision. Please contact your financial professional before making an investment decision.
Micron Urges Government Investment with R&D Spend – The Next Platform
Over the last twenty years, memory has risen from 10% of the semiconductor market to almost 30%, a trend that is expected to continue, propelled by compute at the edge all the way up to datacenter. To meet these demands, memory giant, Micron, has announced it will make $150 billion in internal investments, ranging from manufacturing and fab facilities to R&D to support new materials and memory technologies.
The nature of the announcement serves two purposes. The first is obvious, Micron is putting a stake in the ground around its bullish view for edge to datacenter growth and their role as a primary component maker. The second is only slightly less obvious: to compel the U.S. to match funds or continue new investment strategies to support U.S. fabs and semiconductor R&D.
While $150 billion is a sizable investment, the fab component of Micron’s plans will gobble up a significant fraction. While no fab is created equally, consider TSMC’s investments in new facilities, which are upwards of $9 billion. Such investments can take two to three years to yield but the time is certainly right. Gartner, for instance, estimates the costs for leading-edge semiconductor facilities to increase between 7-10%.
While DRAM and NAND are less expensive than leading edge technologies, Micron will need to choose carefully as it sets its plans in motion. Luckily, there is ample government support building in the U.S. for all homegrown semiconductor industry, although it is unclear how federal investments, including the $52 billion CHIPS Act, will augment Micron’s own ambitions.
Micron is seeking the attention of government with its broad R&D and manufacturing investment, pointing to the creation of “tens of thousands” of new jobs and “significant economic growth.” In a statement, Micron explained that memory manufacturing costs are 35-45% higher than in lower-end semiconductor markets, “making funding to support new semiconductor manufacturing capacity and a refundable investment tax credit critical to potential expansion of U.S. manufacturing as part of Micron’s targeted investment.”
“The growth of the data economy is driving increased customer demand for memory and storage,” said Executive Vice President of Global Operations Manish Bhatia. “Leading-edge memory manufacturing at scale requires production of advanced semiconductor technology that is pushing the laws of physics, and our markets demand cost-competitive operations. Sustained government support is essential for Micron to ensure a resilient supply chain and reinforce technology leadership for the long term.”
Micron CEO, Sanjay Mehrotra says the company will “look forward to working with governments around the world, including in the U.S. where CHIPS funding and the FABS Act would open the door to new industry investments, as we consider sites to support future expansion.” The subtext there is that the U.S. is only one country in the running, among others making investments.
Increasing government support will likely align with fabs and facilities but Micron says it’s working on next generation technologies set to keep pace with growing demand.
This is part of the company’s 2030-era plan for memory technology. Micron sees edge and cloud deployments expanding but also points to AI as the leading workload across deployment types. The company’s senior VP and GM for Compute and Networking, former Intel HPC lead, Raj Hazra, says that by 2025, 75% of all organizations will have moved beyond the AI experimentation stage into production.
To support this more practically, Micron has set forth some ambitious near-term targets, including reaching for 40% improvements in memory densities over existing DRAM, double SSD read throughput speeds over current 1TB SSDs, 15% power reductions over existing DRAM and 15% better performance for mixed workloads over existing NAND.
Walmart allowing some shoppers to buy bitcoin at Coinstar kiosks
Coinstar, known for its machines that can exchange physical coins for cash, has partnered with digital currency exchange CoinMe to let customers buy bitcoin at some of its kiosks.
There are 200 Coinstar kiosks located inside Walmart stores across the United States that will allow customers to buy bitcoin, a Walmart spokesperson said.
Walmart was subject to a cryptocurrency hoax in September when a fake press release was published announcing a partnership between the world’s largest retailer and litecoin. The news had briefly sent prices of the little known cryptocurrency surging.
(Reporting by Uday Sampath in Bengaluru; Editing by Devika Syamnath)
Here’s What Makes Intuit (INTU) A Meaningful Investment – Yahoo Finance
Cooper Investors, an investment management firm, published its “Cooper Investors Global Equities Fund (Hedged)” third quarter 2021 investor letter – a copy of which can be downloaded here. For the rolling three months to one year, the Fund returned 5.7% and 28.24% respectively, while its benchmark, by comparison, returned -0.42% and 26.57% over the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Cooper Investors, in its Q3 2021 investor letter, mentioned Intuit Inc. (NASDAQ: INTU) and discussed its stance on the firm. Intuit Inc. is a Mountain View, California-based software company with a $156.4 billion market capitalization. INTU delivered a 50.80% return since the beginning of the year, while its 12-month returns are up by 72.12%. The stock closed at $572.80 per share on October 19, 2021.
Here is what Cooper Investors has to say about Intuit Inc. in its Q3 2021 investor letter:
“The other meaningful deal during the quarter was Intuit’s acquisition of Mailchimp for $12bn. Intuit has reinvented itself over the last decade and thrived with a leadership position in QuickBooks Online, the financial accounting software for small businesses (effectively the ‘Xero of the US’). We originally invested in Intuit in February 2020, excited by the QuickBooks prospects.
Management have executed exceptionally well on the opportunity set which has seen the shares double since our initial purchase. However, the company has now conducted two meaningful deals in Mailchimp and Credit Karma worth a combined US$20bn over the last 12 months. The investment proposition has shifted from a focus on QuickBooks to now being a financial and small business software conglomerate. We continue to very much admire the company, but with Intuit now trading on 50x forward earnings we no longer see such attractive latency on offer, nor the rewards for the level of execution risk and thus we have exited the position.”
Based on our calculations, Intuit Inc. (NASDAQ: INTU) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. INTU was in 66 hedge fund portfolios at the end of the first half of 2021, compared to 68 funds in the previous quarter. Intuit Inc. (NASDAQ: INTU) delivered an 11.34% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
Canada no longer advising against non-essential travel, first time since March 2020 – CTV News
Let's Art Teen returns to Cultural Centre – Energeticcity.ca
Guilt, grief and anxiety as young people fear for climate’s future
Silver investment demand jumped 12% in 2019
Europe kicks off vaccination programs | All media content | DW | 27.12.2020 – Deutsche Welle
Iran anticipates renewed protests amid social media shutdown
Real eState22 hours ago
Calgary housing market sees best Q3 since 2014, says real estate board – CBC.ca
Tech21 hours ago
Where is Google’s foldable phone? Everything we know so far – The Verge
Health19 hours ago
Canada government, provinces agree COVID-19 vaccine travel passport – officials
Tech19 hours ago
MacBook Pro's M1 Max GPU is Over 3x Faster Than M1 in First Metal Benchmark – MacRumors
Business18 hours ago
U.S. FAA seeks new minimum rest periods for flight attendants between shifts
Media19 hours ago
Ex-US President Donald Trump announces social media site – Al Jazeera English
Science5 hours ago
Rocket failure mars U.S. hypersonic weapon test as others succeed
News19 hours ago
U.S. safety board says driver, passenger seats occupied during fatal Tesla crash