McDonald's (MCD) Argues That Some Companies Are Recession-Proof
There is no economic slowdown under the golden arches. Where else can someone buy a large meal of heart-healthy food for under $2, and only $1 for the kids.
McDonald’s has begun to make the case to investors that it is in a business which will be unscathed by a recession. It is not alone in that, but it is a member of an increasingly elite club.
According to Reuters, Jim Skinner, the head of the fast food company said, “Worldwide turbulence is barely affecting our business.” His company now has the advantage of falling commodities prices, a brand which has established itself over many decades, and a product which costs very little.
Skinner has something to show for his argument. McDonald’s stock is off about 8% since the beginning of the year. The Dow is off 35%.
Two other companies which have done well in the stock market recently are P&G (PG) and Wal-Mart (WMT). The same general theory of strong branding and inexpensive products applies to them. As people feel more poor and lose their credit, they gravitate to what they can afford. Wal-Mart is the definition of cheap. Procter & Gamble sells soap and razors.
The number of companies who can claim they will not bleed their way through a recession shrinks daily. Thursday, Intel (INTC) fell by the wayside. Exxon (XOM) has lost that distinction because a slow economy is pushing down oil prices. Even GE (GE) has been knocked out of the running.
Hamburgers are inexpensive, they taste good, and go well with beer. They are the perfect antidote to the blues.
Douglas A. McIntyre