Tuesday, December 30, 2008
Wednesday, December 24, 2008
Thursday, December 18, 2008
McDonald (MCD) may be as well positioned as any company I can think of to prosper during these difficult times. The reason is the effects of three forces that all appear to be driving business to their stores.
- Trading down effect: It is clear that Wal-Mart (WMT) is winning over a bigger segment of the populace in these tough times with their low prices. I believe the same thing is going on at McDs. Eating out is the American way, but I’m betting that more and more Americans will be eating a little lower on the hog at their local McDs.
- Brand battle: The McCafe concept, which is being rolled out nationwide, will do battle head-on with Starbucks in specially brewed coffee. This thought might take a while to accept, but judging from the locations where I have seen it introduced, it is a big success. It is driving a different kind of consumer to McDs – more upscale, a little higher income demographic. By all accounts I have heard from my coffee-drinking friends and family, the coffee is top notch and it is less expensive than at Starbucks. Could be a big win.
- Competitive atrophy: The other big burger companies have almost all moved their target audiences out of direct competition with McDonalds. Burger King is appealing now almost exclusively to men and Wendy’s appears to be aiming at attracting women. Both appear to have given up much of the kid’s market to McDs.
Mike Hull, our consumer strategist, believes that MCD can post 6% higher earnings in 2009 over 2008, and that the dividend will grow close to 9%. That kind of relative performance will draw buyers to the stock, especially when the average stock will have lower earnings in the coming year.
Mike believes that MCD’s business model is putting increasing pressure on their competitors, which could add up to big market share gains in the year ahead for McDonalds.
As always, this blog is for information only. Do not make buy or sell decisions based on what has be written here. The authors and clients of the authors own the stock. Although we have no plans to sell the stock, we will not comment here when we do so.
Wednesday, December 17, 2008
The news that Bernard Madoff may have stolen $50 billion from his clients puts an exclamation point on a tragic year for the finance industry. It’s one thing to make stupid subprime investmentments, as much of Wall Street and some of the banks have done, but it's another ball game when an individual outright steals people’s money. That is bottom of the barrel stuff, especially when so much of the money belonged to foundations whose aim it is to help those less fortunate.
There are many parts of the Madoff story that just defy credulity. He seemed to operate in the cracks of all of the various regulatory bodies.
One part of his operating procedures that we faced some years ago is that of being both a money manager, and the custodian of the assets. As a custodial investment manager, Madoff not only managed his client’s assets, but he also had direct access to the assets. To us that seemed like a lot of added risk and expense. Thus we chose to be a non-custodial manager. As most of you know, TD Ameritrade is our custodian. They hold the assets and make the trades. Our clients sign what is known as a limited trading authority that allows us to manage their accounts and collect our fees.
While being a custodial investment manager has some advantages for clients, such as more flexibility in moving money, the added risks, regulations, and capital costs that we would have had to incur to become a custodian manager outweighed the conveniences.
The only real encumbrance that we have to deal with as a non-custodial manager is that, since we have no direct access to our clients’ funds, TD Ameritrade requires a little more paperwork to authorize moving money around.
As the years have gone by, however, with faxes and email, this has gotten a lot easier, and knowing that we have a very capable custodian partner like TD Ameritrade gives us confidence that no money ever leaves an account that does not have the consent of the client and corroborating paperwork. I can tell you that having TD Ameritrade on board is a comfort to me, and I hope after the Madoff scandal, it is a comfort to our hundreds of clients spread across 29 states.