Today I wanted to focus on three stocks that have continued to push on their 52 week highs. All three of these companies have had a fantastic year. As the United States economy continues to recover, these companies are primed to ride the market even higher.
One scary part about these stocks is the lofty valuation metrics that they currently possess. As practical investors, we need to be able to realize when a stock has the strength to move higher and when it has peaked. A strategy that I like to use with solid companies like these is to buy on the pullbacks, thereby lowering your cost basis. Now I want to take a more in depth look at these three companies.
Company Overview: McDonald's generates revenue through company-owned restaurants, franchise royalties, and licensing pacts. Restaurants offer a uniform value-priced menu, with some regional variations. As of September, there were 33,100 locations in 117 countries, including 26,800 franchisees/affiliates units and 6,400 company units.
Forward P/E Ratio = 17.7
P/CF Ratio = 15.1
Market Cap = 103.7 Billion
Price VS. 52 Week High = 101.35 -101.86
Debt to Equity VS Industry = .8 to 3.2
Dividend Yield = 2.78%
Years Increasing Payouts = 35 Years
5 year Dividend Growth Rate = 20.4%
Recent News: McDonald's will announce Q4 Earnings report on January 24th. Analysts surveyed by Thomson Reuters predict a profit of $1.29 a share on revenue of $6.78 billion. A year prior, the company reported earnings of $1.16 a share on $6.21 billion in revenue.
Stock Performance: McDonald's was the best performing Dow component of 2011. Over the last year, the fast food giant is up more than 36%. This is not a one year phenomenon here as over the previous 5 years it is up an astounding 129%. This is absolutely amazing considering it includes one of the greatest financial downturns in history.
Morningstar's Take: McDonald's continues to thrive despite an increasingly challenging environment for restaurant operators. Although we doubt the firm can duplicate the 1,000 basis points of operating margin expansion it posted during the past five years, we are optimistic that it is capable of generating excellent returns on invested capital over an extended horizon. Our confidence stems from unrivaled scale advantages, an incredibly strong brand, and ample international growth opportunities. We don't expect these qualities to abate anytime soon, thus earning McDonald's the widest economic moat in the restaurant category.
Opinion: McDonald's is an absolute behemoth of a company. Its expanding overseas operations as well as its continued dominance in the United States makes it hard to see anything but positives for the company. The fast food market is also extremely resistant to economic downturns. Consumers seem willing to sacrifice nearly everything else before their Big Macs. Even if Europe does head down the road towards recession, it seems that McDonald's is protected.
Company Overview: Nike is the world's largest designer and wholesaler of athletic footwear and apparel. The firm sells to more than 50,000 retail accounts, through a network of more than 700 company-owned stores, and through independent distributors and licensees in more than 170 countries. North American Nike brand sales are projected to account for 36% of revenue in fiscal year 2012, followed by Western Europe (18%), emerging markets (14%) and China (10%)
Forward P/E Ratio = 17.3
P/CF Ratio = 27.3
Market Cap = 46.3
Price VS. 52 Week High = 100.86 - 101.12
Debt to Equity = .02
Dividend Yield = 1.45%
Years Increasing Payouts = 10 Years
5 year Dividend Growth Rate = 13.8%
Recent News: Nike just added a new electronic wristband to its popular Nike+ athletic line. It is designed to measure your time, calories, and steps you take during your workouts. Here is a particularly good write up about the new device.
Stock Performance: Over the last year Nike has performed admirably. The company has seen its share price rise nearly 20% since January of last year.
Morningstar's Take: Nike remains the largest and most dominant player in the athletic footwear and apparel category that it helped to revolutionize during the past 40 years. Industry competition gives no indication it will subside, but we expect Nike to maintain its market leadership via a wide economic moat built on superior product development capabilities, globally recognized brands, tremendous economies of scale, athlete and team sponsorships that tend to be hard to unseat, and a solid foundation in several emerging markets. We have been encouraged by the recent improvement in futures orders (footwear and apparel orders scheduled to be delivered during the next five months) as well as the firm's cost-containment efforts, which should lead to operating margin expansion during the next several years.
Opinion: Nike is a powerhouse of a company, with one of the most recognizable brands in the world. Nike has been a consistent value stock that offers investors a stable dividend with a good 5 year growth rate. It has also managed to increase its dividend for the previous 10 consecutive years. This gives it a place on the respected dividend contenders list. Nike has also seen solid growth in the emerging markets which bolds well for them in the future. I am also excited about Nike's new foray linking athletic performance with social media via its NikeFuel products.
Yum Brands (YUM)
Company Overview: With more than 38,100 units in 110 countries, Yum Brands operates the largest quick-service restaurant system in the world based on number of units. It generates revenue through company-owned restaurants, franchise fees, and licensing arrangements. Concepts include KFC (17,000 units), Pizza Hut (13,500), and Taco Bell (5,900). Yum generated $37 billion in system sales in 2010 (48% U.S., 37% YRI, 14% China) and $2 billion in operating profit before corporate expenses (33% U.S.
Forward P/E Ratio = 19.4
P/CF Ratio = 14.0
Market Cap = 29.9
Price VS. 52 Week High = 62.66 - 63.00
Debt to Equity = 1.62
Dividend Yield = 1.84%
Years Increasing Payouts = 8 Years
5 year Dividend Growth Rate = 31.3%
Recent News: Yum Brands' Taco Bell unit, which has been losing share to Chipotle's (CMG) costlier, higher-quality offerings, says it's looking to overhaul its menu to better compete with Chipotle. In other news, KFC announced that it will be slashing some HQ positions as it looks to revamp its business to suit more health-conscious consumers. Karen Sherman, senior director of public relations, told Business First in an e-mail that the fast-food chicken restaurant chain
made the difficult but necessary decision to reorganize KFC to reduce cost, maximize efficiencies and better reflect our current business needs.
Stock Performance: The past year has seen YUM shares appreciate greatly. The company has moved up almost 31% since this time last year.
Morningstar's Take: Yum remains a well-diversified player in the global quick-service restaurant industry. Several of the firm's brands--including KFC, Pizza Hut, and Taco Bell--occupy the leading market position in their respective domestic categories. Moreover, we believe these brands have sizable international appeal, which should help the firm extend its leadership in China and several other emerging markets. Although rivalry among QSR operators is on the rise globally, we remain optimistic about Yum's ability to generate positive economic returns thanks to one of the rare economic moats in the restaurant industry.
Opinion: One thing that I love about Yum is the speed at which the company is expanding in the emerging markets, namely China. Some 75% of the company's profits come from outside of the United States. In terms of store locations, it is the largest fast food company in the world with over 38000+ locations. At present, Yum has over 3300 KFCs in over 700 Chinese cities. Think about it this way-- Yum opens a new KFC in China nearly every day of the year. Its stated goal is to eventually have over 20,000 locations in China. Yum is expanding its positions in India and Africa as well. These areas will provide for an abundant amount of growth for Yum.
*I would like to thank Morningstar for the valuation and ratio metrics. Also I would like to thank DRiP Investing Resource Center for its list of U.S. Dividend Champions.