With a solid industry position in mature markets, a proactive management team, and expansion in emerging nations, McDonald’s Corporation (NYSE:MCD) is a good option for conservative investors seeking a mixture of growth and income. The shares recently yielded 3.1%.
While it’s important to keep an eye on McDonald’s same store sales numbers, they are far less of a concern than this same metric at a company like Chipotle. While the food quality at the Mexican themed restaurant may be wonderful, it’s a new concept in a crowded field supported by often fickle customers.
The company’s top and bottom lines have grown rapidly, but have come off of a small base and have been fueled by store openings. Such investments often captivate investors, leading to swift stock price ascents. However, once results begin to slow, which is inevitable as a company grows, investors will eventually decide it isn’t worth a premium valuation and jump ship.
For example, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s trailing price to earnings ratio is around 40 versus McDonald’s 18. While recent growth suggests that’s a reasonable P/E, it won’t be if growth slows. This isn’t an issue to shrug off. Chipotle’s shares ran up to over $400 in the middle of 2012 and then quickly fell to below $240 by late October of that year. They have resumed their upward move and now sit at around $360 or so.
The Big Guy
McDonald’s Corporation (NYSE:MCD) is a good option for conservative growth and income investors because of its size, focus, and long history of success. The company may not be an exciting stock to own, but it is a reliable one if you give management the time it needs to steer the ship. Chipotle, on the other hand, isn’t boring. However, it is most appropriate for momentum investors and those willing to watch closely for the time when sales eventually start to weaken.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald’s. The Motley Fool owns shares of Chipotle Mexican Grill and McDonald’s. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article A Restaurant Leader for a Reason originally appeared on Fool.com and is written by Reuben Brewer.
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