The broader market has been in a corrective mode for a few months now. As stocks come in to find their lows and base, investors are compiling their watch lists with the stocks that will be the first to recover. Buffalo Wild Wings (BWLD) and McDonald's (MCD) should be two stocks on this list.
Technically speaking, Buffalo Wind Wings is not a broken stock. Even after the stock market's recent 260 point one day drop BWLD maintained its current sideways consolidation movement. This technical pattern usually means investors are not selling shares in the company and may consider this a strong stock to buy.
Comparing BWLD to the 800 pound gorilla McDonald's, MCDonald's is technically broken. Now I am in no way advocating that McDonald's is a bad investment, the two are very different investment vehicles. The difference technically is how the market is treating the two companies.
Buffalo Wild Wings is a sports-bar chain with more than 800 locations across the United States. Earnings growth has decelerated from 33% to 21% in the latest quarter, with analysts expecting 17% this quarter. High chicken wing costs are a major concern for investors. Shares aren't far from their old highs, but are just below the 50-day line.
Why is BWLD holding up so well? Take a closer look at the fundamentals and you will find that BWLD is consistent, run exceptionally well for a food chain that has experienced so much growth over the past several years. Gross margin is consistently in the mid twenties too. Consistency and exponential growth are very hard to accomplish and maintain when a chain is growing so fast but BWLD has been able to achieve a very desirable consistency in many areas like gross margin and operating margins.
Current EPS is .68 with growth for next fiscal year of $3.91. Even the growth rate is dependable with BWLD hovering just under 19% going forward. The current market likes BWLD's consistency and shareholders are being rewarded.
McDonald's, on the other hand, has to be monitored in other ways, with commodity prices raising. McDonald's is the world's largest chain and serving around 68 million customers daily in 119 countries makes McDonald's a big blue chip that is difficult to gauge. McDonald's, unlike BWLD, has to deal with franchisee owners too while all the BWLD stores are corporate owned. Most recently McDonald's revised its guidance lower because of the global slowdown.
Fundamentally McDonald's is a solid investment, EPS is a healthy $1.42 and next fiscal year is estimated at $6.50. McDonald's growth rate as a Dow stock is good at 4% and is expected to grow to 10% over the next year. McDonald's is rich in investment history but current technical trends show that McDonald's is currently broken.
While both BWLD and MCD can be a good investment into the future it comes down to personal investment choices - choosing either a new higher growth investment with slightly more risk associated in BWLD or a conservative Dow stock giving a slow steady more predicable return in McDonald's.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
