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Mickey D’s Gets an ‘A’ for Turnaround

A couple of weeks ago, we looked at Buffalo Wild Wings (Nasdaq: BWLD) and cautioned that there was no rush to jump into the stock.

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A couple of weeks ago, we looked at Buffalo Wild Wings (Nasdaq: BWLD) and cautioned that there was no rush to jump into the stock. The share price has since dipped another 6 percent, closing trading on Friday at about $120 a share. Clearly, investors need to see more to buy a turnaround story there.

This week we take a look at a restaurant chain that did manage to engineer an impressive turnaround. As you can see in the chart below, McDonald’s (NYSE: MCD) essentially treaded water until taking off in mid-July 2015.

When taking into account the fact that the S&P 500—proxy for the broader market—returned some 34 percent in 2013 and another 15 percent in 2014, MCD’s relative performance during that period was pretty lousy. Year to date, however, MCD has returned (including dividends) almost 30 percent in 2017. In a relatively short amount of time, the stock has gone from a laggard to a leader.

Flash back to 2013, McDonald’s was in the midst of a slump. From the second quarter of 2012 through the first quarter of 2015, a span of twelve quarters, the company missed revenue and earnings estimates each nine times. It did not missed expectations by very much—the largest revenue or EPS miss during that period was less than 7.5 percent—but the consistently underwhelming financial results sapped investor enthusiasm. Between 2012 and 2014, earnings per share fell from $5.37 to 4.82 and the restaurant chain was losing market share to competing fast-food chains. And relationship between the corporate office and franchisees was very poor.

Fast forward to 2015. In March that year, Steve Easterbrook, former chief brand officer and former head in the U.K. and northern Europe divisions, took on the mantle of CEO and launched sweeping changes across the organization culturally and strategically.

He stripped away layers of bureaucracy to simplify the corporate structure and to increase accountability. He mandated that the company listen more to its customers to get in tune with changing customer tastes and to endeavor to offer higher-quality service and better food. For example, one of the earliest actions under Easterbrook was to commit to only serving chickens raised without the use of antibiotics to better meet customer demand for antibiotic-free food.

One major turnaround driver was the implementation of “All Day Breakfast,” which made its popular Breakfast Menu available to customers during all open hours and immediately boosted sales, which by the second half of 2015 had already breathed new life into the stock. The introduction of the McDonald’s app enabled customers to order remotely and pick up their food at a location of their choice.

Moreover, the company has tested and rolled out self-order kiosks and table service that aimed to improve efficiency and customer service. Expansion of its menu also gave customers more choices and more reason to return. For example, the introduction of the “Grand Mac” and the “Mac Jr.,” different size versions of its famous “Big Mac” burger, have been successes. The restaurant chain has revamped the décor at many locations to improve the look and feel of the McDonald’s experience and even introduced delivery services in select areas.

Put everything together and same-store sales are growing again, including at a 4 percent clip globally in the latest-reported quarter. Top and bottom lines in recent quarters are consistently beating The Street’s expectations and the stock performance has made shareholders very happy.

Some franchisees voiced their displeasure and skepticism at Easterbrook’s reform plan in the beginning, but improving sales quickly won them over. By the end of 2018, McDonald’s projects that by the end of this year, about 93 percent of its locations will be operated by franchisees, up from approximately 80 percent when Easterbrook took the helm. Franchisee-operated restaurants offer the corporate parent higher profit margins and local operators tend to have better knowledge of local tastes.

So for Buffalo Wild Wings, as McDonald’s shows, a turnaround is always possible. But there’s still a lot of work to be done. Mick McGuire’s plan to refranchise more locations is only one piece of the puzzle. In the months ahead, the company will have to make some major moves to get investors excited again.

Photo: “McDonald’s” by JeepersMedia is licensed under CC BY

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Goldman Sachs CEO Thinks Markets Are Too High

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Original Link | Motley Fool

Analysts and commentators are often derided for saying that stocks are overpriced and due for a correction. Behavioral economics, the fad at the moment, holds that making predictions is like throwing darts at a dartboard with a blindfold on.

But what happens when a growing chorus of the best investors in the world all start to say exactly that? Should these people also be treated like Greek mythology’s Cassandra, who could see the future but couldn’t persuade others about her predictions?

The latest example is the chairman and CEO of Goldman Sachs (NYSE:GS), Lloyd Blankfein. At an industry conference this week, Blankfein expressed concern about the current state of the markets, saying that the situation “unnerves” him.

“Things have been going up for too long,” he said. “When yields on corporate bonds are lower than dividends on stocks? That unnerves me.”

The head of Goldman Sachs, which has been among the most omniscient of trading firms on Wall Street in recent history, adds his name to a growing list of other high-profile financiers that have publicly expressed concern.

Here’s what Howard Marks, co-chairman of Oaktree Capital Group (NYSE:OAK), wrote in a memo to clients in July:

[I]t’s essential to take note when sentiment (and thus market behavior) crosses into too-bullish territory, even though we know rising trends may well roll on for some time, and thus that such warnings are often premature. I think it’s better to turn cautious too soon (and thus perhaps underperform for a while) rather than too late, after the downslide has begun, making it hard to trim risk, achieve exits, and cut losses.

Since I’m convinced “they” are at it again — engaging in willing risk-taking, funding risky deals, and creating risky market conditions — it’s time for yet another cautionary memo. Too soon? I hope so; we’d rather make money for our clients in the next year or two than see the kind of bust that gives rise to bargains. (We all want there to be bargains, but no one’s eager to endure the price declines that create them.) Since we never know when risky behavior will bring on a market correction, I’m going to issue a warning today rather than wait until one is upon us.

Here’s Jeffrey Gundlach, co-founder and CEO of DoubleLine Capital, a fund with $110 billion in assets under management:

If you’re waiting for the catalyst to show itself, you’re going to be selling at a lower price. This is not the time period where you say, “I can buy anything and not worry about the risk of it.” The time to do that was 18 months ago.

Here’s Warren Buffett, the chairman and CEO of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), intimating the same thing in a letter he penned earlier this year to the shareholders of Berkshire Hathaway:

Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.

And here’s Ray Dailo, the co-founder and chief investment officer of the world’s largest hedge fund, Bridgewater Associates, writing recently in a LinkedIn post:

When it comes to assessing political matters (especially global geopolitics like the North Korea matter), we are very humble. We know that we don’t have a unique insight that we’d choose to bet on. Most importantly, we aim to stay liquid, stay diversified, and not be overly exposed to any particular economic outcomes. We like to hedge our bets, though we are never completely hedged. We can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and Treasuries) would benefit, so if you don’t have 5%-10% of your assets in gold as a hedge, we’d suggest that you relook at this. Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this (and if you do have an excellent analysis of why you shouldn’t have such an allocation to gold, we’d appreciate you sharing it with us).

In short, one can be as dogmatic as one likes about predictions, but when investors and financiers like these start expressing concern, it’s probably not such a bad thing to listen.

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4 Reasons Why “Gold Has Entered A New Bull Market”

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– 4 reasons why “gold has entered a new bull market” – Schroders
– Market complacency is key to gold bull market say Schroders
– Investors are currently pricing in the most benign risk environment in history as seen in the VIX
– History shows gold has the potential to perform very well in periods of stock market weakness (see chart)
– You should buy insurance when insurers don’t believe that the “risk event” will happen
– Very high Chinese gold demand, negative global interest rates and a weak dollar should push gold higher

This week gold broke through the key resistance of $1,300. For some time market commentators have been signalling this level as the point of entry for a new bull market.

Often price can be distracting when it comes to trying to figure out what is going on. Two Schroders fund managers called the new bull market in gold about a week before the price broke through the key level.

Gold has entered into a new bull market. As we have discussed previously, there are four main reasons for our stance:

  1. Global interest rates need to stay negative
  2. Broad equity valuations are extremely high and complacency stalks financial markets
  3. The dollar might be entering a bear market
  4. Chinese demand for gold has the potential to surge (indeed, investment demand in China for bar and coin already increased over 30% in the first quarter of 2017, according to the World Gold Council)

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Alphabet Is Getting Squeezed, but a Breakout Is Coming: Chart

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Alphabet (GOOGL) shares have successfully retested a nearly four-month support line and are prepared to make a volatile move higher. This is just one of a number of technology stocks that have recently retested support lines, and have the potential to return to previous pattern resistance levels or to new highs.

Alphabet should be a leading indicator for the space. It is positioned on a well-tested support level and undergoing a volatility squeeze. The level of buying interest this move attracts should be a gauge on the general sector.

There are several ways to identify a potential volatility squeeze in a stock. One indication is when the upper and lower Bollinger bands move inside the Keltner channel boundaries. Bollinger bands are measures of standard deviation around a moving average. Keltner Channels are a measure of standard deviation using average true range.

It is unusual for the Bollinger Bands to contract to a point where they enter the Keltner channel and this reflects a level of extremely low volatility. Periods of low volatility are often resolved by periods of high volatility, and in the case of Alphabet, the resolution should be higher.

Google is a holding in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio.Want to be alerted before Cramer buys or sells GOOGL? Learn more now.

Moving average convergence/divergence has made a bullish crossover and the stochastic oscillator has crossed above its center line. These indicators reflect positive short-term price momentum and potential trend direction. The stock has broken above short-term resistance in the $945 area, and is retesting its upper Bollinger band.

It appears the breakout is underway and the first upside price objective is to fill the July downside gap by returning to the resistance level of a large horizontal channel.

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