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McDonald’s may be missing the mark when it comes to meeting its North American sales goals, but in emerging markets the fast-food chain is doing well. (Matthew Sherwood for The Globe and Mail)
McDonald’s may be missing the mark when it comes to meeting its North American sales goals, but in emerging markets the fast-food chain is doing well. (Matthew Sherwood for The Globe and Mail)

VOX

When you like the stock – but not the company’s product Add to ...

My six-year-old sometimes asks to go to McDonald’s for a Happy Meal. So I say, “Tell you what. I’ll take you to the dollar store and buy you two toys if we can go to Wendy’s instead.”

This isn’t, however, a column about the bribery that parents of young children engage in on a daily basis. Instead, it’s inspired by a comment my colleague Chris Umiastowski made earlier this week when discussing the high-definition sports cameras of GoPro: “It’s okay to love a company and its products yet not feel the same about the stock, or vice versa.”

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The vice versa would be not loving – or maybe even hating – a company and its products, but actually liking the stock. And, honestly, I can’t manage to do it – even if it costs me money.

McDonald’s Corp. is one example. In a handful of writings on the company here in The Globe and Mail, I’ve been occasionally positive on the name, noting its dividend and cash flow even as it missed sales expectations, particularly in its home territory of North America.

And when I’ve considered McDonald’s sometimes-middling results, I’ve wondered why the company hasn’t done even worse. In the current issue of Consumer Reports, McDonald’s ranked dead-last among the 21 rated hamburger chains, with “food quality and freshness” its Achilles heel. This generated what I considered to be some of the least-surprising news bulletins of the summer. (“For this they needed a survey?” I asked, quoting a favourite long-ago headline about how the French were found to be the world’s rudest people to tourists.)

I’m very happy with food that’s bad for me, but that tastes good. There’s another group of people, however, that is into food that’s high-quality, organic, sustainable, whatever. They’ve been shopping at Whole Foods Markets Inc. and eating burritos at Chipotle Mexican Grill Inc. – and staying away from McDonald’s.

Between those folks, and people like me, you’d think McDonald’s would be done for. But the company’s weak U.S. sales are offset by growth in emerging markets. China, in particular, has become a nirvana for U.S. fast-food companies whose products are waning in popularity at home. (Do you think of the word “Yum” when I say “KFC” or “Taco Bell”?)

And McDonald’s keeps generating the cash to raise its dividend. The shares have more than doubled from the market’s March, 2009, bottom, which trails the S&P 500, but is also not indicative of a company in irrevocable decline. A happy meal, indeed.

While I try to stay miles away from McDonald’s, I’ve been a grudging, unhappy customer of Microsoft for years. And I was quite vocal about it in previous Globeinvestor.com posts. “I am so often tempted to recommend Microsoft Corp. stock, because I see all that cash on the balance sheet, and the cash flow, and that cash dividend, and, because … cash,” I wrote.

“And then I use a Microsoft product and the urge deserts me.”

Two things have happened since that online piece of October, 2012. One is that I dumped Outlook in favour of Gmail. The other is that Microsoft stock is up 64 per cent, easily beating the broader market’s 40-per-cent return.

The bulk of the gain came after the announcement in August, 2013, that CEO Steve Ballmer, who oversaw a culture where no innovative idea survived, would retire. His replacement, Satya Nadella, came from within, however. This, to me, makes theories of Microsoft’s resurgence in a cloud-and-app-driven world all the stranger.

Still, though, it should have been clear back then that so many people shared my disdain for Microsoft and its products that a change at the top would generate a wave of enthusiasm. The shares traded for less than 10 times forward earnings, a silly number for a company with that much cash-generation capabilities. Even after the rise, the shares are around just 15 times earnings.

I think I could really get into this stock – if I could just get over its products.

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