2014 has been another great year for stocks, and the bull market is now nearing its sixth year. With valuations getting stretched and with many sectors not having performed up to expectations, investors have to start wondering about what will come in 2015 — in particular, which sectors and stocks will outperform the market. So, 24/7 Wall St. is evaluating some of the 2014 Dow Jones Industrial Average (DJIA) lagging stocks for their prospects. Is it possible that the food giant McDonald’s Corp. (NYSE: MCD) could end up being the best performing DJIA stock in 2015?
Before deciding this is just ludicrous, an exercise of history has to be considered. McDonald’s has many problems, but it is still ranked only as the eighth worst DJIA stock of 2014. The Golden Arches shares are actually up 1.8% so far in 2014, thanks in part to that 3.5% dividend yield. The effort here is not to make major bold predictions, but to see if the analysts and investment community are simply too negative based on all the known events.
When 24/7 Wall St. conducted its methodology for the 2014 DJIA Bull and Bear Case, the analysts covering DJIA stocks were indicating gains of only about 3.2% before dividends. The Dow is currently up 8% so far in 2014. But now let’s consider what was expected from McDonald’s in its bull and bear case for 2014. Analysts were calling for a gain of almost 7%, which would have made it in the top third of the 25 DJIA stocks we evaluated.
It turns out that McDonald’s has been riddled with problems in growing same-store sales. In fact, those sales have by and large been negative. Now you have an incredibly strong U.S. dollar, which could work against it in the existing international growth markets. And then there are the constant labor pressures — what happens if McDonald’s and its franchisees have to end up paying a minimum wage that averages $10, $12, or even $15 an hour?