In a recent blog post, the Wall Street Journal asked its MarketBeat readers if a share of McDonald’s stock or a barrel of oil made a better $100 investment. The share price of the fast-food restaurant topped $100 for the first time ever in late December and rose 30 percent over 2011, substantially beating the overall market. Crude oil prices had less sizzle, only moderately increasing over the year.
The three-year picture is a little different, with crude oil more than tripling since its bottom in late 2008. Over the same time, McDonald’s increased about 66 percent, says the Journal.
This is an interesting question because it pits a classic U.S. company that has expanded from one drive-in restaurant in 1940 to the world’s largest restaurant chain today against a commodity in limited supply but growing demand from emerging markets.
McDonald’s embodies many of the qualities we like in a company. During a challenging global environment during the third quarter of this year, the company reported higher revenues, operating income and earnings per share compared with the prior year. Global comparable sales grew a modest 5 percent, diluted earnings per share increased 6 percent in constant currencies, and $1.5 billion was returned to shareholders through share repurchases and dividends.
The company also boasts the fact that it has been able to increase its dividend since the program began in 1976. The latest quarterly dividend rose to $0.70 per share–nearly a 3 percent yield on an annualized basis at the January 4 closing price.
And even with 33,000 restaurants in 119 countries today, McDonald’s is expected to continue growing, especially in emerging markets such as China.
A survey of farmers in rural villages across China by CLSA Asia-Pacific Markets found half of rural families expect their meat and meat product consumption growth to outpace vegetables, dairy and fruit over the next 5-10 years. With its established footprint in the country, McDonald’s is positioned to feed these rising rural carnivores. According to a Bloomberg article last summer, the restaurant chain expects to open a store in China “every day in the next three to four years.”
However, I recently highlighted that China also has an insatiable appetite for oil. In addition, oil has been a victim of declining supply in major oil fields in the Persian Gulf. Oil prices were also affected by civil war and turmoil in the Middle East throughout 2011, and we don’t see this ending soon.
There’s also a developing demand story for oil. In its World Energy Outlook, the Paris-based International Energy Agency says crude oil consumption will be driven by developing countries over the next 20 years. These countries will account for 90 percent of the world’s population growth, 70 percent of the increase in economic output and 90 percent of global energy demand growth over the period from 2010 to 2035.
Each power play has its strengths, but both, to a certain degree, depend on the growth of emerging markets.
So, how would you invest that $100 bill? Let me know at editor@usfunds.com.
Recent Oil Posts:
Case for Sustained $100 Oil
Things Get “Heavy” for Saudi Arabia
None of U.S. Global Investors Funds held any of the securities mentioned in this article as of September 30, 2011. By clicking the links above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
