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LakeView's Rothbort: McDonald's Is Substitute For Bonds (Audio) · Bloomberg Intelligence

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  Speaker 1: Well, now I want to turn to McDonald's earnings disappointing. Uh.
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  Speaker 1: Is this not only important for things to come at McDonald's,
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  Speaker 1: but also for fast food in general and maybe even
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  Speaker 1: for the entire economy. Scott Rothbort joins us now. He's
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  Speaker 1: president and founder of Lakeview Asset Management. Scott, welcome back
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  Speaker 1: to the show. Thanks for having me on again. Well,
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  Speaker 1: let first let's talk about the news. What happened to McDonald's.
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  Speaker 1: Why did their earnings disappoint Well, you know, earning the
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  Speaker 1: disappointments are based upon expectations, so one can make the
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  Speaker 1: argument that perhaps analysts were expecting that the company would
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  Speaker 1: do better, especially with same store sales um But I
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  Speaker 1: think you have to look at McDonald's in a more
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  Speaker 1: holistic one and and not really focusing on the individual
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  Speaker 1: uh data points that they released. McDonald's is a company
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  Speaker 1: really kind of onto a sector of its own when
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  Speaker 1: you think about it's it's the largest global restaurant chain.
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  Speaker 1: But as I tell my students in Seaton Hall, and
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  Speaker 1: I asked them, what's McDonald's in the business of doing?
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  Speaker 1: They all say selling him org As I said, No,
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  Speaker 1: they're in the they're in the retail business. Sorry, they're
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  Speaker 1: in the um uh. They in the real estate business
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  Speaker 1: rather than the retail food business because they are one
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  Speaker 1: of the largest real estate operators in the countries. A
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  Speaker 1: matter of fact, you can go online McDonald's has a
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  Speaker 1: whole list of properties that are for sale by McDonald's.
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  Speaker 1: And what McDonald's been doing is that they have been
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  Speaker 1: in the process over the last few years of refranchising
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  Speaker 1: their units Nella's. McDonald's itself no longer wants to be
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  Speaker 1: in the operating business. They would rather be a franchise
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  Speaker 1: r and least their real estate to the franchise ease,
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  Speaker 1: and this is the way the business is going. You
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  Speaker 1: can't really compare McDonald's to an up and coming restaurant
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  Speaker 1: chain like Zoe's you know that's one of my favorite ones,
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  Speaker 1: or Wings Stop or Elpoyo Loco. They're really in different
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  Speaker 1: categories even though they both sell food, you know, those
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  Speaker 1: those companies are a little bit more specialized in terms
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  Speaker 1: of the meal that they offer UM and they're much
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  Speaker 1: earlier in their in their growth phase. Having said that,
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  Speaker 1: Scott Rothbort, does McDonald's trade as a real estate company
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  Speaker 1: or as a restaurant business because the stock is up
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  Speaker 1: less than three percent so far this year. Compare that
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  Speaker 1: to the SMP five hundred a game about six percent,
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  Speaker 1: and it's paying just under three percent of the dividend. Well,
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  Speaker 1: it's a great question, UM. I have said for the
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  Speaker 1: last several years, UM that you have to look at
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  Speaker 1: McDonald's as being a dividends stock, as a company that's
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  Speaker 1: basically going to be paying out cash brow through dividends
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  Speaker 1: and stock repurchases. Now, Pimnew and I have talked about
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  Speaker 1: McDonald's well over a decade now, and I brought it
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  Speaker 1: back in two thousand three when the company was really
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  Speaker 1: at its body in the midst of really a problematic
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  Speaker 1: period for the company. And then over the next ten
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  Speaker 1: years they transformed themselves and and fix the company up.
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  Speaker 1: They expanded internationally, and by two thousand and thirteen, you
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  Speaker 1: really couldn't do anything more with McDonald's that you had
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  Speaker 1: already done over the course of that period of time.
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  Speaker 1: And now it was now it's about squeezing as much
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  Speaker 1: cash flow out of his operations, out of his franchise,
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  Speaker 1: of his real estate. So I look at McDonald's as
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  Speaker 1: a company that's yielding three That yield is going to
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  Speaker 1: go up probably sometime in the fourth quarter of this year. UM,
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  Speaker 1: and I look at McDonald's in the point of view
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  Speaker 1: of being a substitute for UM bonds rather than being
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  Speaker 1: a growth company. Okay, that's interesting point because we see
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  Speaker 1: in our bloomberg A news story today that Stiffill financial
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  Speaker 1: corpse Paul Restaurant has raised concerns about the restaurants actor
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  Speaker 1: hitting a downturn, harbinger for a broader economic slump in
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  Speaker 1: the US next year. UM westra and Jefferies Group analyst
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  Speaker 1: Alexander Slagel downgraded other restaurant stocks today. Red Robin, So,
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  Speaker 1: I guess you're saying you don't compare McDonald's to the
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  Speaker 1: other sort of you know, fast casual dining chains. You
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  Speaker 1: say that they exist in their own and they're they're
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  Speaker 1: safe like a bond. But when you look broadly at
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  Speaker 1: the industry, what's it telling you, well would tell me,
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  Speaker 1: is that it's a very broad industry. You really answered
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  Speaker 1: your own question there. UM, I look at companies like Zoey's,
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  Speaker 1: which is in the early part of his growth process.
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  Speaker 1: By the way, we own Zowey's UH in our restaurant portfolios. UM,
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  Speaker 1: we talk about Zoe's and McDonald's another restaurant companies in
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  Speaker 1: our newsletter, which is available for the general public. Um.
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  Speaker 1: Uh and uh you know McDonald's it really is, is
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  Speaker 1: a much older, more established company. Um. But when you
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  Speaker 1: look at David Buster, I'm not going to say that
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  Speaker 1: the people who go to David Busters are gonna be
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  Speaker 1: the same people who are gonna go to McDonald's. What
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  Speaker 1: McDonald's has that everyone else doesn't have is basically McDonald's
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  Speaker 1: pretty much had every exit on every major um highway
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  Speaker 1: along this country, all right, And that's that's really who
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  Speaker 1: the tryn to service these days, people who are along
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  Speaker 1: the highways, people who want quick meals. The same cannot
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  Speaker 1: be said for I Dine sorry, um for um, for
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  Speaker 1: Dine Equity, who owns Applebee's an Eyehop. The same can't
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  Speaker 1: be said for you know, all the restaurant chains, um
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  Speaker 1: like Ruby Tuesday. Hey look yesterday. Um, there was a
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  Speaker 1: major investor who put a lot of money into Buffalo
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  Speaker 1: Wild Wings. So you may have some antalts who come
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  Speaker 1: out and down uh down grade the entire industry, but
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  Speaker 1: I think selectively, there are some great bargains uh. And
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  Speaker 1: there's some great road ahead for some of these chains.
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  Speaker 1: Scott Rothfort, the founder, the president of lake View Asset Management,
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  Speaker 1: Thank you very much. This is taking Stock. I'm PIM
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  Speaker 1: Fox my co host Kathleen Hayes. This is Bloomberg. H