McDonald's Stock a Top Pick for 2018

Nomura expects a strong year from McDonald's, thanks in part to its new Dollar Menu

by Josh Selway

Published on Jan 2, 2018 at 9:09 AM

McDonald's Corporation (NYSE:MCD) is set to start the new year on the right foot, thanks to a bullish note from Nomura. The brokerage firm named the fast food giant its top pick for domestic restaurant stocks, expecting a number of factors -- including a new Dollar Menu -- to lead to better-than-expected results over the next two years. As such, the covering analyst raised his price target to $190 from $180, representing a 10.4% premium to Friday's close at $172.12.

In pre-market trading, MCD shares are up 0.5%, trying to carry over 2017's momentum. Specifically, the Dow stock rose over 41% for the year, and hit a record high of $175.78 on Dec. 18. The security has since found support in the form of its rising 40-day moving average.

As such, sentiment is mostly upbeat toward the stock. There are 26 analysts covering McDonald's, and 21 say it's a "buy" or "strong buy," with zero "sell" recommendations to be found.

Options traders have been bullish, too. That's according to the equity's 10-day call/put volume ratio of 1.56 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the high 86th annual percentile, showing a much stronger-than-normal demand for long calls over puts.

And MCD could be a promising target for near-term options traders, since its Schaeffer's Volatility Index (SVI) of 12% ranks below 77% of readings from the past year -- hinting at unusually low volatility expectations at the moment. Plus, the stock has a Schaeffer's Volatility Scorecard (SVS) of 84, showing a strong tendency to top options traders' volatility expectations over the past year.

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