Daily Stock Pick of the Day - Thurs., Sep 9, 2010

In an earlier post this week, I mentioned that there are a lot of good, quality stocks that are "on sale" right now. I read an article in IBD over the weekend that talked about how McDonald's (MCD) is doing with their newest entry into the beverage market -- the fruit smoothie. Apparently, they are doing very well. The new fruit smoothies, along with the premium coffees launched a few years ago have been driving same store sales in the quarter-ended June. The article goes on to point out that with McDonald's being so prevalent in 14,000 restaurants in the U.S., many cost-conscious consumers are often closer to a McDonald's than they are to one of the smoothie chains. They've certainly got an expertise in marketing, so when you put these two elements together, they've got a real winner in this product.


So, I was looking at their chart and I just think it's a bit overextended here at $74/share. Their 50-day moving average is around $70.56 -- quite a spread. However, I put the value of MCD at approximately $91/share, so maybe an optimistic investor could pick up shares at this price and make a nice return (about 21%). Risk is on, though. MCD hasn't traded at this range in the last 3 years.

I tend to be more conservative. Starbucks (SBUX) is the major player in this space (for premium coffee, that is). Yeah, MCD has eaten into their share, but since executing some tough cost-cutting over the last 18 months, their stock has managed to rise steadily over the past 12 months. It currently trades around $24-$25 per share, but if it can hold on above it's 50-day moving average for several days, it will have a solid shot to the $28 range (price prior to May flash-crash). Analysts value this stock at around $30/share. I like the growth prospects on this - I'm keeping an eye on it.

As always, stay cautious and happy trading!

Obligatory disclaimer: This blog is for information only. Past results do not guarantee future performance. All financial decisions involve risk and there are no guarantees. The suggestions above are for informational purposes only and the blogger is not liable for any losses incurred as a result of actual investment activity on the part of the reader.