McDonald's (MCD) has been in a bearish descent since mid January of 2012, when it peaked. It was in a nice pattern until early May. This move was a reaction to the whole market and the news at the time, so it did not warrant such an extreme case. This gives us an opportunity to play a bounce back.
The company grew by 3.3 percent for April, and that was lower than expected. It was calling for an estimated growth rate of about 4%, while analysts were looking for 4.29%. About a year ago, it had a 6% growth recorded. Who was to blame? Management placed the blame at the feet of the challenging global economic climate. This caused the huge reactionary decline, but it is hardly devastating to a company that did see growth, just not as expected.
Even Europe saw a 3.5% increase in comparable sales for the month of April, while Asia/Pacific, Middle East and Africa reported a comparable sales increase of 1.1% for the same month. Do not for one second think the company is not extremely successful, even though it grew slower than expected; it is going to rebound. It has a great new menu with value items and high-margin items like blended ice drinks.
McDonald's has the habit of being able to pick up customers in the difficult of economic times, and there is no reason it will not rebound nicely. With the new menu change in time for the summer, it could well be riding a big wave once again. Let's be honest, if there is one company in the world that nobody needs to be concerned about right now, it's McDonald's.
For this reason, here is a great rebound play; watch the stock move up this summer.
(click to enlarge)
The Options Play
- Sell a September 2012 call with a strike of '92.5' (priced at $2.90)
- Buy a September 2012 call with a strike of '95.0' (priced at $1.83)
- Net Debit to Start: $1.07
- Maximum Profit: $1.43
Reasoning behind the Trade
- The stock has been over-sold and looks ready to rebound. McDonald's in Summer makes money.
- The new menu will increase profits.
- The recent drop was a reactionary drop and will recover.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
