McDonald’s: Valuation and the Breakfast Conundrum

McDonald’s Corp. (NYSE: MCD) had greatly recovered from its woes of several years ago and it has an ambitious shareholder capital return plan. That said, the fast-food king’s gained only 3.2% in 2018, after generating a return of over 41% in 2017. The revamping of the stores and the meals is at a time when burger-flippers and cashiers want higher wages, and McDonald’s has invested in non-personnel technology like ordering kiosks that remove humans from the equation. It’s also unclear if the McDonald’s effort for more “pure” food will win in the coming years.

Shares traded at $177.57 at the end of 2018, and the consensus price target of $195.44 was substantially higher than the $179.79 consensus target from a year earlier. McDonald’s dividend yield of 2.6% would generate an implied total return of 12.7%, if the analysts are right this year.

Merck: From Big Pharma to Being the Top Dog

Merck & Co Inc. (NYSE: MRK) was the best performing Dow stock of 2018 with a 35.8% gain. That is after having disappointed in 2017 with a return of −4.4%. Merck is viewed as defensive in a choppy market, but there sure has been a lot of talk by politicians about drug-price controls. The $76.41 share price compares to a 52-week range of $52.83 to $80.19, and the consensus price target of $81.01 and the 2.9% yield would generate an expected total return of 8.9%, if the analysts are forecasting accurately.

Microsoft: Still Floating Happily in the Cloud

Microsoft Corp. (NASDAQ: MSFT) ended 2018 with an impressive gain of 18.7%, after its gain of 37.7% in 2017 blew out expectations of that time. Microsoft shares also broke out above their dot-com bubble highs from almost two decades ago as Satya Nadella’s move to the cloud and subscription services has been incredibly well received. Microsoft closed out 2018 at $101.57, in a 52-week range of $83.83 to $116.18. The software and cloud giant’s consensus target price of $125.39 is up handily from a consensus target of $92.75 a year earlier. Its dividend yield of 1.8% is now lower than a year earlier due to price appreciation in the stock, but the analysts following it expect a total return just over 25% for 2019.

Nike: Recovery After a Reboot

Nike Inc. (NYSE: NKE) managed to bring a gain of 18.5% in 2018, after a total return of 23.1% in 2017. With trade war risks and emerging markets showing less growth, the question is if Nike can “just do it” again for a third year. After shares closed out 2018 at $74.14, the consensus target price of $86.44 is handily higher than the consensus target price of $64.65 from a year earlier. The 1.2% dividend yield would make an expected almost 18% total return in 2019.

Pfizer: Big Pharma’s Number Two

Pfizer Inc. (NYSE: PFE) turned in a gain of 20.5% in 2018, after a total return of 11.5% in 2017, and, while impressive, that is less than rival Merck, which Pfizer had outpaced in the prior year. Analysts know Pfizer as defensive and safer in a choppy market, but there are ongoing woes in the pharmaceutical industry about price regulation in the saber-rattling in Washington, D.C. Analysts also must fear that the strong performance of 2018 will be by a lower margin in 2019. Pfizer’s year-end price of $43.65 comes with a consensus price target of $45.32 and a yield of 3.3%%, for an expected 2019 total return of about 7%.

Procter & Gamble: Beyond Activist Pressure, to Something Somewhere

Procter & Gamble Co. (NYSE: PG) had floundered due to international issues and competitive issues, but with a reboot happening in its portfolio and with the stock market favoring defensive names, its shares were back to flat in 2018. Shares traded at $91.92, and P&G’s year-earlier consensus price target was $93.53. The new year consensus price target of $90.88 would imply a 1.1% drop, before adding in the solid 3.1% dividend yield.