McDonald’s needs little introduction. It is among the best-known food brands in the world. McDonald’s is the largest restaurant chain in the world by revenues. McDonald’s has had to adapt to the changing times. Firstly, it had to modify its menu to include healthier food options due to the backlash and negative view on the unhealthiness of burgers and fries. Secondly, McDonald’s is paying close attention to the increasing digitalization of the industry. It has been working on its online presence, ordering systems, drive-in, and delivery. The ability of McDonald’s to sustain its scale while still adapt to the changes in the industry makes it one of the top restaurant stocks to invest in.
What About the Coronavirus Risk?
It is well-known that restaurants have been among some of the worst-hit businesses during the pandemic. There is uncertainty due to high unemployment and the status of vaccines. So, it would be natural for any investor to question the risks associated with a restaurant business. McDonald’s earns around 60% to two-thirds of its operating profits from international markets outside the US. As the US faces a second wave of the pandemic, some international regions are seeing a drop in the daily virus cases. McDonald’s scale and diversification mitigate some of the US-related risks. McDonald’s size and scale also mean that it has higher financial strength to get through the pandemic than some of the smaller independent businesses. In fact, a closure of those smaller joints can lead to a higher market share for McDonald’s.
If we look at the price action of some of the restaurant stocks then we must consider McDonald’s, Domino’s, and Chipotle. These are the biggest names in the QSR category. Domino’s has been surprisingly steady over the past few months and does not seem to be affected much by the pandemic. Its stock is up 30% in the year 2020. McDonald’s is up 7% for the year, but it has risen by 56% since the March market crash. Chipotle, meanwhile, is up 56% for the year 2020 and up 189% since the March market fall.