Today news came up about a possible margin squeeze affecting restaurant chains. Higher commodity costs, frugal consumers, possibly a higher minimum wage could possible affect earnings of companies such as McDonald’s (MCD), Chipotle (CMG), Subway and Panera (PNRA).
How serious this is?
I hold MCD in my portfolio. It pays dividends and current yield is at 3.24% with dividend growth at 14%. The free cash flow rate, 5yr average is 13.4%, earnigs growth 23.8%, EBIDTA 19.8% and my annual expected return is at 9%.
The company is followed by 44 hedge fund managers. One of their rules to add shares into their portfolios is that at least one executive officer should buy the company stock. In November last year this exactly happened and the stock has risen 8% since then.
So smart money are buying the stock.
The stock was very extended since November last year with a nice drop in price in December 2012 when I pick up some shares. Will today’s price action offer the same opportunity?
Will the stock, squeezed by panicking investors provide a similar opportunity as it happened in November and partially in December?
Time will show, however, this price action activated my attention to this stock and I will be adding more shares to my portfolio. I am going to wait for tomorrow morning to see what the stock is going to do. If it continues falling I will track my buy order lower as well, if it reverses I might cancel the trade and wait further.