The most important thing to know as an investor is that the
future is uncertain. No matter what kind of analysis and forecast
study is conducted, the future is always a mystery. But there are
rules of thumb investors can rely upon when it comes to forecasting
the future course of theeconomy .
The primary rule of thumb is happening right now andwill likely
continue well into 2013. This rule states that loosemonetary policy
results in a weak U.S. dollar.
Weak dollar =inflation
The Federal Reserve has made it clear it will ramp up its monetary
stimulus and keep interest rates low until unemployment drops to
acceptable levels. In fact,the Fed has vowed to inject $85 billion
into the economy every month and continue with low borrowing costs
that should kick-start hiring andinvesting in order to spur the
A good way to think about this concept is by comparing it to the
starter in your car's engine. It takes a jolt from the battery to
turn the starter, which in turn starts your car's motor. The Fed's
intervention is like the spark from your battery to turn the
starter. Just like a car starter, businesses should be able to
start the engine of the economy.
One possible side effect of the Fed's economic stimulus using
liquidity injections is a weaker U.S. dollar. By adding moremoney
into the economic system, the value of the existing money is
diluted. In addition, the low interest rate environment works with
the liquidity injections to accelerate thedevaluation of
As I said before, nothing is certain about the future, but the
current economic policies are creating the perfect storm to knock
the U.S. dollar lower.
How toprofit during times of inflation
With this in mind, I started researching stocks that have
outperformed themarket during times when the U.S. dollar was weak.
What I discovered is that multinational corporations based in the
United States tend to outperform the market when the greenback is
weak. These companies tend to have robust operations abroad, often
in countries with stronger currencies than the U.S. dollar. So when
it's time to report quarterly results, they must convert that
higher-valuedcurrency into the U.S. dollar. When this conversion
takes place, the company'sbottom line figure is higher.
And one stock that's perfectly positioned to take a big
advantage from the falling U.S. dollar is fast-food giant
McDonald's Corp. (
The low-priced, recession-proof nature of McDonald's offerings
is not the only reason this is my favorite play during times of
Foreign currency translation as a key factor that helped
McDonald's post higher year-over-yearrevenue andearnings per share
) during the third quarter of this year. This is because while it
posted sales of $7.2 billion, which was relatively flat compared
with the same period in 2011, revenue was still up 4% as a result
of currency conversion. At the same token, whileEPS was down 1% to
$1.43, but up 4% in constant currencies.
Boasting amarket cap of more than $90 billion, McDonald's
operates in 119 countries serving nearly 70 million customers
daily. During the third quarter, sales from Europe, where
McDonald's has 7,100 stores, grew 1.8%, despite a drop in guest
traffic. Here's another sign of how the weaker greenback can act as
a positive counterpoint to modest consumer demand throughout the
euro zone. Sales in Asia/Pacific grew 1.4% compared with the
The company also dwarfs its competitors with annual revenue of
more than $27 billion. As a comparison, rival
Burger King (
boasts a nearly $ 2 billion revenue, while
Yum Brands (
has a $13 billion annual revenue. The stock is a good value
right now. McDonald's price-to-earnings (P/E ) ratio just under 17
is lower than Yum Brand's P/E ratio of nearly 20, for example.
The cherry on top is the company's 35 straight years ofdividend
increases with an annualyield of about 3.5%. This September,
McDonald's increased the quarterlycash dividend by 10% to 77 cents
per share - the equivalent of $3.08 per share annually.
Shares are down more than 10% from their January $100 highs.
However, shares have rallied from the mid-November lows in the $83
range. The rally is struggling to break through the 200-day
simplemoving average at nearly $90 a share. A daily close above the
200-day simple moving average sets up a classic breakout trade
Risks to Consider:
While a falling greenback will likely help multinational
companies like McDonald's, there is more to the picture. Despite
McDonald's growth, dividend and competitive leading posture, it's
important to know that the company is posting negative total
returns this year of nearly 8%. This is very weak when compared to
thebenchmark S&P 500's overall returns of nearly 22%. Always be
certain to use stops and position size properly when
Action to Take -->
Despite the overall yearly poor performance, McDonald's has posted
total three-year returns of almost 59% and the November rally
showed a nearly 6% total return. The company's savvy marketing, the
falling greenback and improving worldwide economy will likely make
2013 a winning year for this hamburger favorite.
I like the stock as a daily breakout trade candidate, above the
200-day simple moving average. My 12-month target is $100 a
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