Can McDonald’s Corp. (NYSE: MCD) get its traction back in 2014? 2013 was a considerable year for stocks, with the Dow Jones Industrial Average rising by 26.5% to an all-time high. McDonald’s has lost its way, and all-time highs seem hard to imagine. 24/7 Wall St. has generated a bullish and bearish scenario for each Dow stock for 2014, including one for the Golden Arches.
There are many macroeconomic factors to consider here. Wall Street strategists are generally forecasting higher price targets for stocks in 2014. This rising tide should lift most ships, but can it lift McDonald’s?
Ben Bernanke is on his way out as the Federal Reserve chairman. It is generally expected that interest rates will rise under Janet Yellen, but perhaps not by too much and not too fast. The world markets are exiting their recessions, which could be a serious rescue for McDonald’s and its growth markets.
McDonald’s gained about 13% in 2013, and its current dividend yield for 2014 is 3.35%. After it closed out the year at $97.03, its consensus analyst price target is $103.51, and the 52-week trading range is $89.25 to $103.70.
One issue to consider about the continued market gains at the end of the year, on top of an already strong year going into October, is that McDonald’s shares were basically flat in the past month and only up about 1% in the past quarter.
The bullish case for McDonald’s is that it is a highly defensive stock that should hold up well if the market or economy turns south. It can control its cost structure on its traditional menu items rather easily, and it does offer affordable dining to millions of Americans and millions elsewhere each and every day. Its dividend also trumps just about all restaurant chains, and there is room for that dividend to grow yet again in 2014. The company wants to expand more at home and internationally as well.
McDonald’s has many things working against it in the bearish case. The stock may be defensive, but should investors have to pay more than 16 times expected 2014 earnings for a company in which things have gone off the tracks? Another issue is that McDonald’s seems as though it is only the beginning stages of an employee wage battle, and the public does not seem to be on its side. The company’s growth ambitions seemed too high as well. Perhaps the biggest issue ahead is that the public may be switching to more healthy items, and it does not seem as though McDonald’s has been successful in this transition versus its traditional fast-food menu.
Maybe McDonald’s can make its goals for upside expectations of more than 6% in 2014. And maybe not. It really seems as though McDonald’s needs a catalyst of some sort to move the needle. Its stock chart is also forming a wedge; that may be a determining factor by the end of January.
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