Many stocks aren’t near their all-time highs, even as the market headlines are. That could be an opportunity for investors, particularly those who focus on undervalued industry leaders.
Leaders will typically lead the rest of the sector higher once a turnaround starts. They also tend to sport the best profit margins. And for dividend-paying sectors, leaders tend to offer the best yields.
The restaurant space lagged last year, as rising interest rates weighed on this defensive part of the market. McDonald’s (MCD) rose just 10 percent in the past year, even as revenues rose 14 percent and earnings grew 17 percent.
But the chain’s hefty 33 percent profit margins make it look better than other big industry players. That could lead to an above-average year for investors. This top global brand in the restaurant space looks ready to trend higher.
McDonald’s trades at about 23 times earnings, about in-line with the overall stock market.
Action to take: Investors may like McDonald’s shares at current prices or on any drop lower. Shares yield about 2.3 percent at current prices, and the company has a history of strong dividend growth.
For traders, the March $300 calls, last going for about $4.30, could see low-to-mid double-digit gains on a continued rally in the coming weeks.
Disclosure: The author of this article has a position in the company mentioned here, but does not intend to trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.