Can McDonald’s Continue to Surge Higher?

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With shares of McDonald’s (NYSE:MCD) trading around $95, is MCD an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

McDonald’s franchises and operates McDonald’s restaurants in the United States, Europe, Asia Pacific, the Middle East, Africa, Canada, and Latin America — so just about every part of the world. Its restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. The products provided by McDonald’s fulfill cravings at competitive prices in convenient locations worldwide. The McDonald’s craze shows no signs of slowing, so the company has continued its expansion to just about every nation on the globe. As consumers continue to enjoy McDonald’s products, look for it to see rising profits.

When a photo of what was supposed to be mechanically separated chicken, or “pink goop,” went viral and quickly became associated with McDonald’s Chicken McNuggets, many people thought the chain was doomed. The picture of the goop, which looks similar to unsavory strawberry soft service ice cream, certainly does not resemble anything close to chicken meat, and some feared that it would be the straw that broke the camel’s back for McDonald’s.  There have long been rumors that McDonald’s manufacturing process is something its customers never want to know about, and that picture almost all but confirmed it. Time reports that in response to the photo featuring the “pink goop,” McDonald’s Canada released a video on its website that gives customers a behind-the-scenes look at how McNuggets are really made.

T = Technicals on the Stock Chart Are Mixed

McDonald’s stock has traded sideways in the last couple of years. The stock is currently surging higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, McDonald’s is trading between its rising key averages, which signals neutral price action in the near-term.

MCD

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of McDonald’s options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

McDonald’s options

14.18%

50%

48%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

March Options

Average

Average

April Options

Average

Average

As of Friday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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