In a really hideous day one of the hardest hit stocks is one of the best long-term investments of the era: the stock of McDonald's (MCD) .
Why is it down?
Because JP Morgan put out a piece of research saying they believe that the third quarter will come in below consensus estimates.
Despite what's been a very strong labor market and good increases in wages, the report says there's been very little chain expansion, the tracking service JP Morgan uses says things have deteriorated year over year and that the company's losing share to independents.
It gets worse. Delivery could be good for McDonald's but their research shows that "McDonald's contributed significant scale to the US UberEats platform and UberEats in turn used that delivery network to add thousands of restaurants that compete effectively against McDonalds - and any Quick Serve Restaurant with ease of use on their app if not delivery times or price."
In other words, they have sowed the seeds of their destruction.
I have to tell you that this is a tough one and not just, in part, because in spite of this negative news JP Morgan keeps it as a buy. It's almost oxymoronic to do so given the research the firm has done.
I think McDonald's is a buy. But there's a problem here. Almost every single firm that follows McDonald's has a buy on it. That's an accident waiting to happen. If any of these other analysts do similar checks on the company with a stock up 17% there's a likelihood that you catch a downgrade and a further cascade.
Mind you, I expect a lot of defenses given the hammering but it's truly a tempting situation for any analyst who's been riding the stock higher ever since whiz Steve Easterbrook became CEO. I would be more worried about trying to sell it and then buy it back when the shake-out is over. Plus, we can't even be sure that the channel checks they are doing are even right. I can't tell you how many times I have seen these kinds of projections be inaccurate.
So what's there to do? I like to zig when others are zagging. This morning the calendar changed: we are in October and when you get to this month you begin to get mutual funds piling into the winners for the year.
There is no bigger winner in the S&P this year than Chipotle (CMG) , with a stock that's up 92%. A lot of the weakness that we hear about McDonald's has to do with the lack of good promotions. Chipotle's the opposite. It's got a terrific one-timer, Carne Asada, a tender hand cut stake - I've had two of them already - and it's just teamed up with DoorDash to deliver much more seamlessly - pun intended. Many parts of New York City, for example, could not get delivery of Chipotle until very recently. I think it's taking share from everyone, although I respect what Yum's (YUM) been doing here.
To me the choice is clear: go with Chipotle, which we know is doing well, but if you own McDonald's I think you can ride this weakness out as ultimately if there is something wrong I am confident that Steve Easterbrook will figure it out and fix it. Yes, he is that good, and that's what matters.