Outrage! Outrage!
Rabble! Rabble! Rabble!
Outrage! Outrage… Rubble? Rubble? Rubble?
“Rubble Rubble” – The Hamburglar
If there was ever a time for the McDonald’s Hamburgler to get to work… now might be the day.
A new viral video out of Connecticut showed that combo meals at the fast-food chain have hit nosebleed levels.
Tictoker@xconmedia showcases the menu and prices for a Big Mac combo meal had exploded over the last year.
He says: “Well, well, well. So I’m up here in Connecticut, right? Does anybody see the prices of these combo meals? The prices of a Big Mac combo meal? $16.89?”
$16.89?
Does it come with a toy made of gold in the bag?
Stimulus Checks and Food Inflation Impacting McDonald’s Stock?
The Big Mac combo price at this Connecticut location is about two times the cost of the same product in certain towns in Florida and Texas.
There could be any number of reasons for the $16.89 price tag…
Minimum wage laws, taxes, and variable/fixed costs are company-specific and can increase prices.
Meanwhile, supply might be an issue, as it may cost more money to move products across the region on trucks, trains, or other transportation.
Then there’s the demand side…
Over the last two years, Congress passed out massive stimulus checks, something the Tiktoker references during his video.
And on the monetary policy side, the Federal Reserve printed trillions of dollars out of thin air. Inflation is largely linked to monetary policy – although other factors can come into play.
Naturally, on the supply side, McDonald’s Corporation (MCD) has also been making news with its shift toward automation. It has recently unveiled its first workerless location, operated entirely by robots.
As the company turns more toward automation and away from human workers, there may be a downturn in Big Mac meals…
But is McDonald’s stock a buy?
Overbought Big Macs
McDonald’s stock is currently trading near an all-time high of $290.51 per share.
Over the last month, the stock has gained a staggering 7.7% – which is significant for a consumer defensive stock.
Oddly, McDonald’s has taken off in the wake of the banking crisis. Whether it’s the result of a flight to safety or just pure momentum, shares have been on fire lately.
But there are a few warning signs for investors right now…
First, McDonald’s is – somehow – trading at nearly 9.5 times sales. To justify its stock price, investors would need to receive more than nine years of revenue from the management to justify its valuation.
No R&D spending… no wages… no robots… no taxes. EVERY DOLLAR in the door must be returned to shareholders to justify that valuation.
Second, MCD stock is trading at a PE of nearly 34. I can’t comprehend how this is possible, given that MCD is not a growth stock.
It’s a defensive stock for many investors, and it appears to be one that too many people have piled into since March.
For more evidence, look at the two most important price momentum oscillators in our toolbag…
The Relative Strength Index (RSI) – which measures overbought and oversold conditions based on price – is trading north of 78.
The RSI tells us that stocks over 70 are overbought and under 30 are oversold. McDonald’s stocks is well into overbought territory.
Meanwhile, the Money Flow Index (MFI) measures overbought and oversold conditions on a scale of 100 to 0. Stocks with an MFI over 80 are overbought.
McDonald’s has a 14-day MFI of 94.5.
Gulp…
Big Gulp! (Wait, that’s 7-11.)
Sometimes, you just have to let a high-flying stock go, or look for an opportunity to buy when there’s a pullback.
I feel that MCD could experience a pretty sharp reversal once profit-taking begins.
To your wealth,
Garrett Baldwin
Market Momentum is Yellow
Volumes remain staggeringly low, and intraday chop has started to suggest a trend of lower highs and lower lows. I’m being rather cautious in this environment, as there isn’t much conviction between the Bulls and the Bears on Monday. We’ll see how investors react to Goldman Sachs (GS) and its earnings report on Tuesday morning.
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
