What About McDonald's? (MCD)

Normally, I have a fairly short term outlook when trying to make predictions about what is going to happen in the markets. The reason for this is because the last decade was brutal for buy and hold investors, whereas flexible traders were offered innumerable opportunities to make money. Furthermore, it seems to me that this trend will continue into the foreseeable future as there is little evidence that the boom and bust cycle of the 2000's is going to end any time soon. Therefore, buy and hold Buffettesque investors need to be excellent stock pickers. If your goal is to pick stocks to hold for the next 10, 20, or 30 years, I think you have to be quite conservative in order to come out on top in the long haul.

One name that I think is starting to shape up like a Buffett type stock pick that can outperform in the long run is McDonald's (NYSE: MCD). For years McDonald's (MCD) was the consummate growth story. I believe, however, that as the company has matured, it is starting to look like a compelling hybrid between growth and value. There are a number of reasons why McDonald's is quite attractive at this point in its evolution. One of the paradigms of Warren Buffett's investment strategy is to allocate capital to companies that have a wide moat or competitive advantage. Oftentimes, this is found in a superior brand name. Buffett's investments in Anheuser-Busch (NYSE:BUD) and Coca-Cola (NYSE: KO) are good examples of this, among others. McDonald's is one of the strongest, most recognized brands in the world. Another thing that Buffett looks for is consistent and predictable revenue growth. Over the last five years, McDonald's has been steadily growing their annual revenue.

Most of the Oracle of Omaha's best investments have been in companies that are easy to understand and outperform their competitors in fairly ho-hum, unglamorous businesses. The fact that McDonald's derives almost all of their revenue from selling hamburgers around the globe should hearten Buffett wannabes. It is a simple, straightforward, and profitable business in which McDonald's is head and shoulders above its competition. If you are buying a stock for the next 30 years, this is what you should be looking for rather than a technology stock which is vulnerable to a rapidly evolving marketplace. Have you checked Dell's (NASDAQ: DELL) stock price lately?

Not only does McDonald's throw off a respectable amount of cash every quarter because of its steadily maturing business and competitive advantage, but it also has room for strong international growth. Make no mistake, one trend that will continue to come to the forefront over the next couple of decades will be the rapid development of emerging and frontier markets. McDonald's (MCD) will be there.

Another component that Mr. Buffett insists upon before investing in a company is a very strong and trustworthy management team. Analysts and people who follow the company believe that McDonald's has world class management. The final reason why I am very bullish on MCD in the long run is that in addition to its growth and value properties, it is also a great defensive play. This was evidenced by the shares' performance during the financial crisis. The stock outperformed pretty much everything under the sun as investors hid out in this name, speculating that McDonald's would benefit from the recession because of their low cost food.

Mr. Buffett has been an investor in McDonald's in the past, although I am not sure if he still holds a position in the shares. If MCD's valuation becomes any more compelling I would not be surprised to see him pounce. The P/E on the stock is currently around 16 times earnings, which seems fair, considering the dividend yield is a very healthy 3.47%. If it falls into the 12-14 range, I believe a long term position becomes imperative for the savvy buy and hold investor.

If you look at the five or ten year chart on MCD, the stock has been trading in a range near its all time highs for about two years. A breakout to the upside could be powerful and long term in nature. If you are intrigued by the thesis I have laid out in this article, I encourage you to do your due diligence on McDonald's. If you like what you see, pull the trigger for the long run.