For Subscribers

Get the complete article now!

TWST: Tell us how you view the health of the restaurant industry today and the outlook for the fundamentals over the next six months.

Mr. Hickok: Industry fundamentals have not been this positive in about 10 years, to the best of my recollection. We are particularly confident about the earnings prospects and stability of the group, and we have been very bullish about the price appreciation potential for these stocks for a while. We made comments at the very end of February, which we wanted to project to the Street about this point. Our caveat was that we might be early and that we needed the technology sector to soften, but our message was very simple.
The irony was that in spite of very strong fundamentals, the valuations had never been lower. Our conclusion was that if there was any softening in the technology sector, the restaurant sector was going to be a solid place to put money, and at minimum, a defensive place to invest. We are not prescient, but as it turns out, just about two or three weeks later we had the softening of tech that we needed. And since mid-March, the restaurant sector has significantly outperformed the market. The macro environment has never been as favorable as it is right now. We expect to have very solid, if not spectacular earnings coming out of the segment defining restaurant companies in the fourth quarter and in the first quarter.

TWST: We should have a brief word about McDonald’s (NYSE:MCD). How has McDonald’s performed over the past six months?

Mr. Hickok: Well, over that period of time the stock has had a bumpy ride. From November to March the stock slid from the high $40s to, say, $30, which was painful because we wiped out about 35% of the value. Part of that movement was due to the company missing an earnings estimate, and there were some earnings estimate reductions. I lowered my own estimates. Also, during that period the NASDAQ was just rocketing forward, and anything that even smelled like old economy was out of favor. But again, since early March, with the softening in tech and with consumer brands becoming popular again, the stock has gone from $30 to the high $30s as of today, which is obviously very good. McDonald’s is the kind of company that it’s safe to invest in because it’s big, it’s liquid, it’s blue chip, and the business is very solid. You can probably continue to make money in it, just like you have over the past 45 days.

TWST: How successful has McDonald’s been in its business overseas and is that continuing to grow?

Mr. Hickok: Yes, over 80% of its development effort is on foreign soil. It’s not domestic.

TWST: It would appear that McDonald’s is a good value today at the current price.

Mr. Hickok: The answer is yes.