This post is part of a special annual report -- Top Stock Picks '09 -- in which TheStockAdvisors.com asked 75 leading newsletter advisors to select their favorite investment for the new year.
Regarding McDonald's, Vodicka explains, "Earnings estimates for the S&P 500 are all over the map going into the New Year, with a $40 spread between high and low figures.
"Most analysts are projecting much of the same market volatility that wreaked havoc in 2008. Steady players need apply; enter McDonald's Corporation. A number of factors should continue to work in the company's favor as 2009 unfolds.
"McDonald's recent success has been driven by a combination of both domestic and international sales growth, with international results outpacing the company's solid domestic results.
"McDonald's plans to open 150 new stores in China in 2009 and with the Fed's plan to flood the world with American dollars, inflationary pressures should help its currency translations.
"McDonald's also looks well positioned to capitalize on a weak consumer environment due to the value proposition of its dollar menu, and its movement into the coffee market, now being offered at 12,800 stores.
"Dividend stocks should provide some additional portfolio security in 2009, and McDonald's boosted its dividend payment by 33% in September of 2008 to $2.00 per share.
"Analysts are targeting full-year earnings of $3.81 per share, which would represent 5% earnings growth year-over-year. With shares currently trading at $62, this stock carries a forward P/E multiple of 16X.
"Although this is a premium to the overall market, the company's strong brand loyalty/recognition and hefty dividend payment make it an attractive investment destination in 2009."
Regarding Burger King, Northrop adds, "Despite a challenging environment of rising commodity costs and declining consumer spending. Comps remain healthy, and we think recent food cost inflation is moderating.
"Recently, the company resumed unit growth after 4 years of negative or no growth, during which time it repurchased and/or closed more than 1,000 under-performing franchises while reinvigorating its brand.
"With a very small international presence relative to McDonald's or Yum! Brands, we expect overseas expansion to be the primary driver of unit growth for the next decade.
"Currently tracking at 8%, we believe BKC can accelerate international expansion and support strong double-digit unit growth for the next 10 years.
"Perhaps the biggest near-term opportunity for Burger King is margin expansion. Burger King's company-operated restaurant margins are currently 12.6% -- substantially lower than the 18.7% margins generated by McDonald's.
"Burger King intends to grow units largely through franchising, which would require very little of its own capital, potentially enabling free cash flow to grow vigorously and opening the door for share repurchases.
"The stock's recent 50% decline provides investors with an opportunity to buy Burger King shares at a price-earnings-growth multiple of just 0.8x, allowing room for small missteps in execution."
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