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McDonald’s Corporation (MCD), The Coca-Cola Company (KO): The Importance of Dispelling Confirmation Bias

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When you are convinced of a certain investment thesis you can bet that a great deal of information can be found in the vast virtual universe known as the Internet to support your notions. This results in confirmation bias. Consequently, I decided to try to find information or notions that will dispel my own viewpoints. Hopefully, you can benefit by following my lead in dispelling any confirmation bias you may hold towards your investments.

Will this restaurant remain on top?

McDonald's Corporation (NYSE:MCD)

I’ve always maintained that global restaurant chain McDonald’s Corporation (NYSE:MCD) will remain a vibrant long-term company translating into superior gains for shareholders in the coming decades. The company and its franchisees operate roughly 34,000 restaurants globally. This gives the company unquestionable purchasing power.

The company’s golden arches increase brand visibility among consumers. Moreover, the company currently provides a 3% dividend yield while you wait for any capital gains.

However, you may argue that McDonald’s Corporation (NYSE:MCD) best days lie behind it.

Trouble at Mcdonald’s

Doing a quick search through the Motley Fool’s Caps community and filtering for underperform picks for McDonald’s Corporation (NYSE:MCD) yields a whole list of people who would agree with you. One such CAPS investor, Haaldan submitted this bearish statement on Nov 18 of last year:

“McD’s sales have dropped worldwide in October, and are beginning to face a lose-lose situation. They can either keep their menu the same and lose the customers that are becoming more and more health-conscious, or they can begin offering healthier meals which will drive prices up and dissuade people from becoming frequent customers.”

Partially driven by higher health care costs and the desire to live longer and healthier lives, consumers show a tendency to buy foods and beverages seen as healthier. The fact that beverage company The Coca-Cola Company (NYSE:KO) showed a higher increase in non-sparkling beverages such as juices and bottled water in its most recent quarter serves as evidence.

Haalden’s concerns about price increases definitely warrant attention as McDonald’s Corporation (NYSE:MCD) showed decreases in comparable store sales of 1.9%, 1.5%, and 1% for January, February and the quarter respectively due to tough economic conditions.

In January, U.S. comparable store sales increased due to the “balanced offering of premium, core and compelling value options” such as “the addition of new Grilled Onion Cheddar burger to the Dollar Menu” give further evidence of consumer price sensitivities.

Any bullish investor in McDonald’s Corporation (NYSE:MCD) should pay attention to changes in consumer preference and price sensitivities going forward.

Too much science fiction?

My bullish sentiment on entertainment conglomerate The Walt Disney Company (NYSE:DIS) comes from its acquisitions of science fiction and fantasy powerhouses Pixar, Marvel and Lucasfilm. Pixar’s movie wizards really know how to put together an animated flick. Marvel owns a vast universe of beloved comic book characters, some of which have already been seen as major blockbuster films. Lucasfilm owns the iconic Star Wars and Indiana Jones franchises.

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