Time to Buy One of the Market’s Most Disappointing Stocks?

What Happened?

McDonald’s (MCD) is taking some heat.

In fact, it has done so for the past two years.

Ever since it increased its burger prices.

As Bloomberg News notes, the price of a Big Mac is 21% higher today than it was in 2019.

It was all part of the inflationary spike after the COVID-19 calamity ended.

The price rises even got the attention of Congress. Senator Elizabeth Warren of Massachusetts complained to the company about the higher prices.

No company ever wants to get the attention of Congress… not in a negative way.

Why it Matters

Last month, as Bloomberg News points out, Senator Warren and two of her senatorial colleagues sent an open letter to McDonald’s CEO, Chris Kempczinski.

The letter asked him five questions about the decisions behind price increases, whether McDonald’s senior management received bonuses, and the calculation of those bonuses.

It always amuses us when folks with little to no business knowledge, start trying to throw their weight around… making it sound as though they have a clue about the questions they’re asking.

Especially when those same people in Congress were largely responsible for the huge inflationary pressures — forcing businesses to close, being responsible for the havoc caused to supply chains, voting to push trillions of dollars into the economy via the Inflation Reduction Act (which actually contributed to higher inflation), and so on.

Look, we’re not saying McDonald’s is a saintly corporation… and that everything it does is with the best interests of consumers in mind. Its primary responsibility is to its owners (stockholders).

It has a legal obligation to act in the best interests of the stockholders.

That is what it has done as it has raised prices as inflation has pushed up the cost of doing business. Now, is it also true to say that the company has increased prices higher than the increased costs it has suffered?

It appears that way. As Bloomberg News reported, McDonald’s operating margin (a measure of profitability) has increased as it has raised prices.

That suggests McDonald’s has improved profitability at the same time that many of its customers are still feeling the effect of government and Federal Reserve inflation.

How it Affects You

The good news is that McDonald’s is taking a bit of an about-turn, by cutting the prices of several menu items.

The resulting change in prices will impact the company’s profitability. But it may help to get Congress of its back.

At least in the short term.

The fact is, looking back to the end of 2022, the stock price has had a terrible track record. It’s up 10% over that timeframe. Which ordinarily may not seem so bad.

But the Nasdaq is up 23%. Even the staid old Dow Jones Industrial Average is beating McDonald’s stock. It is up around 23% too.

While that may not be comforting for those who already own the stock, it could mean that now is the right time to pick up one of the world’s biggest market laggards. Especially if Wall Street starts to consider the stock as undervalued compared to the performance of the ‘hot stocks’ of the past two years.

McDonald’s could be a stock to watch.

[Ed note: The author owns McDonald’s stock.]