McDonald's shareholders will soon be McDonald's employees
Hello friends.
If you are a McDonald's shareholder, you will want to make a choice. You can either sell, or start flipping burgers. You could also do both.
We are going to buy out of the money puts expiring in around a month on Mcdonald's as soon as the market opens on Monday.
Its forward P/E ratio is at 25 while the SPX is something like 14 and still overvalued even then. I think most of the downside left for this market is actually in these big overhyped names, and much of the losses are already behind bargain bin stocks trading for much fairer prices. Mcdonald’s will always trade at a premium due to their powerful brand and massive size, but it’s really silly to expect a P/E ratio that is literally giving a worse yield than risk-free government bonds for a company that has its best days behind it and sees very minimal growth.
To extrapolate on what I mean about the yield of MCD, you can take 100 over the P/E ratio of 25.5 and you will find that Mcdonald's essentially offers 3.9% of the money you put into the stock as fresh earnings each year. Instead of doing that, you could literally buy the United States 1 year bonds and receive a yield of 4.6% per year. Plus you would have a lot less downside risk on the bonds – Mcdonald's can crash at this high price, but bonds have already crashed and are unlikely to fall by much more.
Another thing I’ve noticed is that Mcdonald’s is starting to have to pay its employees more due to the shortage of labor. This will hurt their profits for a while, up until we see the unemployment start to spike.
The bulls will be taking my order shortly.
If you are a McDonald's shareholder, you will want to make a choice. You can either sell, or start flipping burgers. You could also do both.
We are going to buy out of the money puts expiring in around a month on Mcdonald's as soon as the market opens on Monday.
Its forward P/E ratio is at 25 while the SPX is something like 14 and still overvalued even then. I think most of the downside left for this market is actually in these big overhyped names, and much of the losses are already behind bargain bin stocks trading for much fairer prices. Mcdonald’s will always trade at a premium due to their powerful brand and massive size, but it’s really silly to expect a P/E ratio that is literally giving a worse yield than risk-free government bonds for a company that has its best days behind it and sees very minimal growth.
To extrapolate on what I mean about the yield of MCD, you can take 100 over the P/E ratio of 25.5 and you will find that Mcdonald's essentially offers 3.9% of the money you put into the stock as fresh earnings each year. Instead of doing that, you could literally buy the United States 1 year bonds and receive a yield of 4.6% per year. Plus you would have a lot less downside risk on the bonds – Mcdonald's can crash at this high price, but bonds have already crashed and are unlikely to fall by much more.
Another thing I’ve noticed is that Mcdonald’s is starting to have to pay its employees more due to the shortage of labor. This will hurt their profits for a while, up until we see the unemployment start to spike.
The bulls will be taking my order shortly.