McDonald’s Corporation (MCD): Why You Should Own This Fast Food Chain

The recent volatility in the stock market has spooked many investors. With a scale-down of the Federal Reserve’s unprecedented quantitative easing program in the works, some market participants are concerned that the economy will fall back into recession.

Luckily for long-term investors, there is a special set of businesses that continue to earn stable cash flows no matter what the economic environment looks like. One such company, McDonald’s Corporation (NYSE:MCD), serves as the focus of this article.

Profits no matter what

If the goal of an enterprise is to earn a profit, McDonald’s Corporation (NYSE:MCD) has been more successful than the vast majority of enterprises ever created. However, while companies like General Electric Company (NYSE:GE) and Southwest Airlines earn high profits in good economic environments, they tend to earn a lot less during poor economic times.

The same is true for many of McDonald’s Corporation (NYSE:MCD) direct competitors, including The Wendy’s Co (NASDAQ:WEN) and Jack in the Box Inc. (NASDAQ:JACK). While McDonald’s continues turning each dollar of revenue into about $0.14 in cash profit each year, The Wendy’s Co (NASDAQ:WEN) and Jack in the Box Inc. (NASDAQ:JACK) often experience a drop-off during recessions.

As the world’s largest and best-known fast food chain, McDonald’s Corporation (NYSE:MCD) enjoys advantages of scale not yet available to its competitors. It scale allows it to spread out its fixed costs across a larger number of units, allowing it to earn higher margins. Its brand, meanwhile, continues to attract customers during recessions, even as customer traffic falls at Wendy’s and Jack in the Box.

It is unlikely that The Wendy’s Co (NASDAQ:WEN) or Jack in the Box Inc. (NASDAQ:JACK) will ever catch up with McDonald’s in terms of profitability because the latter’s lead is too large. For example, Wendy’s and Jack in the Box have undertaken measures to reinvigorate their brands. These measures include new marketing campaigns and fresher looks at their locations. In response, McDonald’s Corporation (NYSE:MCD) launched a revamped campaign of its own and re-imaged its locations, complete with free WiFi and longer store hours. The net effect is a slight positive for McDonald’s Corporation (NYSE:MCD), which spent a lower percentage of revenues increasing its brand image, more than that gained by Wendy’s and Jack in the Box.