McDonald’s (MCD) has emerged as an attractive opportunity for value-oriented investors, according to trader Mike Khouw, who compares the fast-food giant to a “value meal” in the current economic landscape. The stock is currently trading at approximately 19.2 times forward earnings, marking its cheapest valuation in the past decade compared to nearly 25 times five years ago.
Khouw highlights that McDonald’s benefits from shrinkflation working in favor of shareholders. While menu items like the Quarter Pounder may have seen minor adjustments in size, the company continues to deliver higher sales, earnings, and cash flow. With fewer shares outstanding, each remaining share represents a larger portion of those financial results.
The analyst notes that McDonald’s is not solely reliant on the lower end of the so-called “K-shaped” economy. Higher-income consumers still frequent the brand, and those turning away from upscale steakhouses are often migrating down the restaurant hierarchy rather than cooking at home. McDonald’s scale, convenience, and digital ecosystem offer distinct advantages, provided customers perceive they are receiving a satisfactory meal at a fair price.
With the stock trading near $248.50, Khouw points out that three-month implied volatility sits around 23.5%. Although this appears low relative to many equities, it is slightly above McDonald’s historical ten-year average of roughly 19%. Consequently, he suggests that a options spread may be more prudent than buying calls outright.
The proposed trade involves selling three-month puts with strikes of $230 or $235 and using the premium to buy a $250-$275 call spread. The position would be adjusted to establish a near “even” entry. This structure bets on the stock recovering toward $275 as value initiatives gain traction, while accepting the obligation to purchase shares at a discount below the current price.
Khouw illustrates the cost efficiency of this approach: purchasing a $250-strike call outright would require a premium of $13.50. However, by simultaneously selling the $270-strike call and the $230-strike put, the net outlay drops to just $2.12. Investors should note, however, that selling the put will tie up margin capital.
Disclosures indicate that Tidal owns or holds all securities mentioned. The views expressed are solely those of the CNBC Pro contributor and do not constitute financial, investment, tax, or legal advice.
Options spreads sound clever, but tying up margin for a slow mover like MCD seems inefficient to me.
Is the $230 put strike too aggressive for current volatility? I’d prefer a higher floor to be safe.
I’m surprised by the shrinkflation argument. Isn’t cutting portion sizes bad for long-term brand loyalty?
Love the McDonald’s comparison! Finally a stock that offers actual value in this market instead of just hype and empty promises.