Oct 6, 2014 Investment Education: Want to Improve Your Securities Analysis? Follow McDonald’s
Investment Education: Want to Improve Your Securities Analysis? Follow McDonalds.
When I got my first job a securities analyst, I had the advantage of working for a large institution where I could learn from more experienced analysts. What I found even more helpful was my access to Wall Street investment reports on virtually any company I was looking at. These reports brought me up to speed quickly on the companies, the industries they served, and the macroeconomic environment in which they operated, all of which impact the outlook for a stock. Perhaps more important, they showed me how different analysts analyzed mostly the same data but came to different earnings forecasts and conclusions about a company’s stock. I had direct telephone access to these analysts and would meet with them in person to discuss how to analyze these stocks, often getting comments and insights the analysts did not want to put in writing.
Most of today’s individual investors will not have that opportunity. But with the flow of free or low cost information on the internet, you can create some of that experience. To do this, I recommend you start by closely following McDonalds. The company provides a lot of sales, costs, and profit data in press releases, its annual report, and 10-k and other required filings. This data can be analyzed over time and compared to other fast service restaurants. But to learn from others, as I did, there are a few things you can do. First, obviously, you can do an internet search for “Investment research McDonalds” or something similar, or go to the research tab on many brokerage firm websites and look for reports on McDonalds. But what I really want to emphasize here is what you can learn from the website Seeking Alpha (www.seekingalpha.com). [Note: I have no business relationship with Seeking Alpha.] On the SA website, do a search for MCD (McDonald’s stock symbol.) I did that today and found 34 articles on MCD posted in September, with anywhere from 1 to 111 comments each. Each article covers one or more topics that are part of an analysis of MCD. Few or none try to be complete, but that is not relevant here. What is important is that you will learn something from each. For example, topics touched on in September by one or more articles included: the food quality scare in China; the Russian government’s temporary closing of some McDonald’s restaurants; the consumer trend to healthier food; minimum wage increase proposals; menu complexity and waiting time for service; and the McBrunch strategy to bring more millennials into the restaurants, and more. If you are not a full time investment analyst, you probably would not have thought about all of these. The value you get from Seeking Alpha derives first from being made aware of all these influences, and perhaps more important, seeing how the writers interpret and weigh them in arriving at their investment recommendation. This is where the investment education value lies.
Of the 34 articles posted in September on McDonald’s, about a quarter were primarily ‘buy’ or ‘sell’ recommendations. They were often contradictory, but buyers and sellers almost by definition interpret facts differently, or put different weightings on them. I want to call attention to two postings in particular:
* August 25 Illustrating Why McDonald’s Is Underpriced At Its Current Price <seekingalpha.com/article/2449795-illustrating-why-mcdonalds-is-underpriced-at-its-current-price>
and
* Sept 9 Illustrating Why McDonald’s Is Not Under-Priced At Its Current Price <seekingalpha.com/article/2480755-illustrating-why-mcdonalds-is-not-under-priced-at-its-current-price
The August 25 article uses a discounted cash flow (DCF) analysis, as well as some subjective factors to conclude that MCD is underpriced. The September 9 article disagrees with the August 25 analysis and goes on to use different valuation techniques to show that the stock is not underpriced. Note that the Sept 9 analysis may be a bit too technical for some readers. If so, please review the series on valuation (to be posted shortly) in our blog at www.whystocksgoupanddown.com.
Seeking Alpha encourages contributors to “debate” other contributors. I think you will find that these articles and conversations are a valuable part of your investment education and they will help improve your ability to discern key investment drivers from less important or more transient data.
With your now more comprehensive understanding of the investment variables, you can watch the stock react to news, or not react, both near term and long term, which in turn will tell you something about what is really driving stock performance.
In sum, take advantage of the diversity of analytic styles, valuation techniques, and opinions that you will find on Seeking Alpha, not just for McDonald’s, but for many other actively traded stocks as well. Your sophistication will improve quickly.
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