McDonalds is the Microsoft of Burger Joints

If McDonalds (NYSE:$MCD) were a tech company, it wouldn’t be Apple (Nasdaq:$AAPL) or Google (Nasdaq:$GOOG).  It would distinctly be Microsoft (Nasdaq:$MSFT).

Yes, I realize that I’m talking about the world’s largest chain of burger joints, and it might seem odd to mention it in the same breath as America’s top tech titans.  But hear me out.

Microsoft doesn’t invent anything.  (I say this as a Microsoft bull, by the way.)  It takes ideas developed by others and institutionalizes them.

Think back in time.  Microsoft didn’t invent the personal computer platform, the GUI-based operating system, the spreadsheet, the word processor, the web browser, e-mail, web mail, voice-over-internet telephony, home video game consoles any of the other products and services it markets, yet it has a dominant position in all of them.

Microsoft isn’t an inventor.  It’s a very adept copier and institutionalizer of ideas invented by others.

This brings me back to McDonalds.  McDonalds invented neither the hamburger nor the fast food concept.  (Their burgers are barely edible, in my opinion.)

But Ray Kroc & Co. built a scalable system that has come to define both in the minds of many.  And over the decades, McDonalds has had a rare talent for adapting its menu to changing consumer tastes.  The Happy Meal, Chicken McNuggets, and McRibs were only the beginning.  As Americans became more health conscious, McDonalds started selling salads for the parents to eat while the kids played on the playground.  And as Americans have gone upscale in the coffee drinking habits in recent years, McDonalds stole a few plays from the Starbucks (Nasdaq:$SBUX) playbook by launching its McCafe concept.


And let’s not forget, McDonalds was an early investor in Chipotle Mexican Grill (NYSE:$CMG)—a restaurant that I now cannot fathom living without.

Right now, Buffalo Wild Wings (Nasdaq:$BWLD) and Wingstop must be watching McDonalds very closely.  Micky D’s recently announced that it would be expanding a test of its Mighty Wings in some of its Chicago locations.  If successful, McDonalds could start selling hot wings nationwide, at least as a seasonal offering.

I’m not suggesting that McDonalds will put either of these companies out of business any more than I would suggest that McCafe is a serious competitive threat to Starbucks.  I do, however, see it as another example of McDonalds doing what it does best: taking a concept developed elsewhere and massively scaling it.

McDonalds share price has lagged over the last year, falling roughly 10% over a period in which the market was up by more than 10%.  At 15 times expected earnings, McDonalds shares are not “cheap,” but neither are they particularly expensive for a company of McDonald’s quality.  I would be comfortable buying McDonalds on any significant dips.

I should also add that McDonalds pays a respectable dividend of 3.4% and that it is a serial dividend raiser.  The stock’s dividend has more than doubled since 2008.  Not too shabby in a world starved for quality yield.

Disclosures: Sizemore Capital is long MSFT.

Microsoft, Apple and Big Tech for the Remainder of 2012

Last week, I suggested that Microsoft ($MSFT) would be the ultimate winner in the long war for dominance of the smartphone and tablet markets.

Though Apple ($AAPL) dominates today, it has no real defensible “moats” that would prevent an aggressive competitor from muscling in on its turf.  Consumers are notoriously fickle, and there is little to lock them into the Apple ecosystem.  You can access your key services—such as Facebook ($FB), Twitter, Skype and even Apple’s iTunes—from just about any device, after all.  And if Microsoft is able to leverage its dominance of the desktop market by familiarizing users with its Windows 8 operating system—which looks and feels more or less the same on desktops, tablets and smartphones—Microsoft may well dig the elusive moat that Apple has thus far been unable to dig.

Moreover, Apple’s “idea man,” the late Steve Jobs, is not something that can be replicated, and going forward Apple will find it increasingly harder to stay ahead of its competition.

As Apple discovered to its dismay during the PC era of the 1980s through the mid-2000s, computers are ultimately commodity products for which it is difficult to charge a premium (and yes, I lump smartphones, tablets and PCs together as “computers”).  The iPhone’s popularity has been bankrolled by generous subsidies by service providers like AT&T ($T), Verizon ($VZ) and Sprint ($S).  But as these carriers start to push back against subsidies, Apple will find it harder to maintain its margins without lowering its prices—something the company will be reluctant to do.  In a very short period of time, Apple may again see itself fall from the position of industry leader to that of a niche provider.

None of this suggests Apple’s imminent demise, of course.  As I wrote in the previous article, I’m talking about a long war of attrition that may take a few years to play out.

But none of this matters in the short term.  In the short term, I expect most Big Tech stocks to move together in a fairly tight correlation as investors reassess the economic picture.  For the remainder of 2012, I see investor risk appetites returning, and I see Apple and its competitors Microsoft and Google ($GOOG) leading a rally in technology shares.

I recommend investors pick up shares of the Technology Select SPDR ($XLK) and plan on holding for the remainder of 2012.

With the bad earnings releases of the third quarter mostly digested, I expect to see a broad-based market rally, and I expect more cyclical sectors such as technology to lead.

Disclosure: Charles Sizemore is long XLK through his Tactical ETF Model. This article first appeared on TraderPlanet.

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In a War of Attrition, Microsoft Will Beat Apple

Apple ($AAPL) is getting most of the attention this morning due to its earnings release late yesterday.  Two weeks ago, I asked “Is it time to dump Apple,” and I think the answer is increasingly “yes.”  Though the company remains wildly profitable, earnings missed estimates this quarter, and there is a sneaking realization that Apple’s competitors are catching up.

But today, it’s not Apple I want to talk about.  It’s Apple’s erstwhile PC rival Microsoft ($MSFT). 

Microsoft was the undisputed winner of the PC era, but the company hasn’t quite found its way in the era of Web 2.0 and social media.  The smartphone war is down to two main combatants in software—Apple and Google ($GOOG)—and two in hardware—Apple again and Samsung.  And despite coming out with a tablet years before anyone else, Microsoft has been left behind on this front as well.

Things are about to change.  With the long-awaited release of Windows 8, Microsoft is making a real push into the world of touchscreens and tablets.

Apple launched the first offensive in the smartphone and tablet wars, but in a long-term war of attrition it is doomed to lose for the same reasons that it lost the original PC war.  Apple has always maintained a closed ecosystem and insists on making its own hardware and software.  Steve Jobs’ pigheadedness is the reason why it was the Wintel platform and not the Mac that came to dominate the desktop and laptop markets.

It’s all happening again.  Apple again jumped out to a huge lead, but it will lose the war in the end.

And what about Google?  I like Google and I personally use an Android phone.  But I believe that in a long war it is Microsoft that will win.   I question whether Google really takes Android seriously.  It’s a free product that generates revenues only indirectly by encouraging mobile web browsing via Google’s search engine.  Meanwhile, Microsoft knows how to manage corporate clients, and corporate IT departments are comfortable with Microsoft products to a degree that they will never be with Google or Apple.

As a value investor, I often get into trades too early. Not matter how I might try to game myself to avoid this, it seems to be hardwired into my DNA as an investor.  So it’s entirely possible that I am early this time as well.

That’s ok.  If Microsoft takes longer than I expect to rise to the top, we still get to collect its 3.3% dividend and benefit from owning one of the cheapest major blue chip stocks in the world.

Microsoft is a buy.

This article first appeared on TraderPlanet.

Disclosures: Sizemore Capital is long MSFT.  Get Sizemore Insights delivered to your e-mail FREE.