McDonald's (MCD) has been acting the same for a long time. These people are running a great business. I'm very happy with the dividend policy and the management. I'm happy that McDonald's responds to the public outcry over food quality. Investors that owned McDonald's in 2008/09 were very happy.
Why I am not happy with McDonald's? Mainly because I want to buy some stock but I can't get happy with the price. I have been caught up in short time frame analysis and now that we have some interesting down side movement in the stock price I want to correct that.
McDonald's 1 year stock price chart with MACD (no pun intended) and RSI. Chart from Morningstar.com.
When the price dropped below $90 a share I started to get real interested. I expect the lower resistance level to move up because the value is effected by growth and the expectation of future growth, but where did it move up too?
Look at the basics here to get an idea of what McDonald's is doing for growth. From Morningstar.com
Sign me up, wow. Just to make sure I'm not looking at a theoretical example I checked the debt and the margins. No change in the Debt/equity ratio and the margins are up. So fundamentally, we just want to find a way to get McDonald's in the dividend income portfolios.
That gets me back to same question, at what price? Let's go over that. For my longer term clients I'm more willing to buy and wait for higher yield, for my current income seekers I'm going to need to see a better price. This is where I have had to take on a longer view.
This market has a strong tendency to jump on negative news and punish a price, I will be waiting with some reserves to scoop up McDonald's in that case, just like we did with the Wal-Mart (WMT) bribery scandal, here.
If an investor looked at an expanded time frame for McDonald's pricing you would see a lower resistive price range.
McDonald's 5 year stock price:
The last time McDonald's saw $60 per share was around October 2009. The EPS and the Dividend are up by 25% since then. If the stock matched that growth it would be around $75, and a little higher if you use the recent P/E average to value the change based on market efficiency.
What made be more telling the historical yield chart. A yield chart shows spikes during buying opportunities. Yield is a percentage of price and since yield changes very slowly and price changes quickly, in comparison a spike will tell you if you are making a good move.
McDonald's 10 year yield chart:
Now we are talking. I smell a buying opportunity. To get the daily position on this chart just divide $2.80 by the current price. Anyway, it looks like favorable (dropping) price action is historically three quarters long in relation to yield. Remember on this chart when the slope is down the price is rising. According to this chart we have two quarters of price dropping related to yield, it also tells us that we are very close to an entry point. A stock price of $80 would put this chart at 3.5%.
Looking at the price and yield history I'm going to be excited to see McDonald's at $85 and I'm adding below that. I'm patient and I will move that price if the market is telling me to move it.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MCD over the next 72 hours.