3 Cyclical Stocks with More Room to Run

NYSE: MCD | McDonald's Corporation  News, Ratings, and Charts

MCD – Cyclical stocks, which have a strong correlation with economic cycles—boom and downturn—are expected to perform well in the coming months as the economy recovers. However, since an investor rotation into these stocks started earlier this year, many of them don’t now have significant room left to run. We think McDonald’s (MCD), Costco Wholesale (COST), and Sysco (SYY) are among those names that do still have plenty of upside. So, let’s evaluate these companies.

Cyclical stocks refer to shares of companies that typically witness business declines during economic downturns and thrive in an economy’s recovery or expansionary phase. The finance, energy, and industrial sectors are some of the cyclical sectors that are heavily dependent on economic conditions. Conversely, sectors such as healthcare and consumer staples are not heavily dependent on the economic conditions thanks to the inelastic nature of demand for their products and services.

Naturally, the reopening of the economy, improving job market, and rising Treasury yields are all favorable for cyclical stocks. However, the expectation of an economic recovery this year led to many investors earlier this year to take positions in the potential winners of the recovering economy. So, while most cyclical stocks could witness upside from their current levels, it’s hard to find those that have plenty of room to run.

But, McDonald’s Corporation (MCD), Costco Wholesale Corporation (COST), and Sysco Corporation (SYY) have yet to return to their pre-pandemic business volume, as  “new normal” restrictions are still hampering their operations.  However, we think that once these restrictions are eased further, and with continued success by the mass vaccination drive, these stocks could climb  much higher than the other cyclical stocks based on growing business and rising investor attention.

McDonald’s Corporation (MCD)

MCD, a leading global foodservice retailer, operates and franchises approximately  39,000 McDonald’s restaurants worldwide. Its target markets include primarily the United States and  international lead markets, high growth markets, foundational markets and corporates.

Earlier, in November, MCD announced a new growth strategy, Accelerating the Arches. As part of this strategy,  the company is focused on updating its  actions and behaviors and growth pillars by leveraging its  competitive advantage. This should  help MCD increase its market reach and customer base.

Against an uncertain backdrop regarding franchisees and restaurant operations, MCD delivered its strongest quarter of the year, recovering nearly 99% of fourth quarter 2019 global comparable sales. MCD reported revenues of $5.31 billion in the fourth quarter, ended December 31, 2020. Its global comparable sales improved sequentially, reflecting positive comparable sales in the U.S. of 5.5%. It reported a net income of $1.38 billion, with an EPS of $1.84.

Analysts expect MCD’s EPS to rise 21.8% year-over-year to $1.79 in the current quarter, ending March 31, 2021. A  consensus revenue estimate of $5.02 billion for the current quarter represents  a 6.4% rise year-over-year. The stock has gained 5% year-to-date.

MCD’s strong fundamentals are reflected in its  POWR Ratings . The stock has an overall B rating,  which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. MCD also has a grade of A for Quality along with a B for Momentum, Stability, and Sentiment. In the B-rated 46-stock Restaurants industry, it is ranked #13.

In total, we rate MCD on eight different levels. Beyond what we stated above, we also have given MCD grades for Growth and Value. Get all MCD’s ratings here.

Costco Wholesale Corporation (COST)

Based in Washington, COST is a worldwide operator of membership warehouses and e-commerce websites. The company offers merchandise in various categories, which include foods, sundries, hardlines, fresh foods, soft lines, and others.

Comparable sales growth has been the primary driver of COST’s profitability in its  last reported quarter. Its net sales include core merchandise categories, warehouse ancillary and other businesses. For the fiscal second quarter, ended February 14, 2021, COST’s net sales have increased 14.6% year-over-year to $44.77 billion, driven mainly  by a 13% increase in comparable sales and sales at 18 net new warehouses opened since the end of the second quarter of 2020,  along with rising sign ups at warehouses. Its operating income has risen 5.8% from its  year-ago value to $1.34 billion, while its EPS has improved 1.9% to $2.14.

Analysts expect COST to report EPS of $2.23 in the current quarter (ending May 2021), up 18% year-over-year. A  consensus revenue estimate of $42.14 billion for the current quarter represents  a 13.5% improvement from its  year-ago value. The stock has gained 23.8% over the past year.

It’s no surprise that COST has an overall B rating, which translates to a Buy in our POWR Ratings system. In the A-rated Grocery/Big Box Retailers industry, it is ranked #21 of 40 stocks. 

The POWR Ratings also assess stocks based on different categories. Click here to see the additional POWR Ratings for COST (Quality, Growth, Sentiment, Momentum, Value and Stability).

Click here to checkout our Retail Industry Report for 2021

Sysco Corporation (SYY)

SYY is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments, and other customers. The company’s segments consist of U.S. Foodservice Operations, International Foodservice Operations, SYGMA and Other.

On February 15,  SYY launched nine exclusive and innovative chef-tested menu concepts through its Cutting Edge Solutions platform. These new and differentiated products are expected to provide foodservice operators with unique menu offerings, innovative meal solutions and environmentally friendly cleaning and beverage products.

On March 11, Guest Supply, a SYY subsidiary, partnered with Corsicana Mattress Company to introduce its Contourest Copperbed self-sanitizing antimicrobial and antibacterial mattresses for the hospitality and higher education marketplaces. These mattresses are expected to attract many potential customers.

With a business recovery in sight, SYY is making bold progress in  its transformation agenda, while preparing for an anticipated  coming increase in demand. Despite the complex business climate, SYY reported net sales of $11.60 billion in the second quarter ended December 26, 2020. It has also reported net earnings of $85.90 million, with an EPS of $0.17. Its free cash flow for the 26-week period ended December 26, 2020 has increased 112.2% year-over-year to $788.24 million.

Given its industry-leading financial strength and ability to invest in inventory, staffing and service levels, analysts expect SYY’s EP to grow at a CAGR of 22.9% over the next five years. The stock has gained 86.3% over the past year.

SYY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. SYY also has a B grade for Growth, Momentum, Quality, and Value. It is currently ranked #8 of 81 stocks in the B-rated Food Makers industry.

In total, we rate SYY on eight different levels. Click here to see the additional POWR Ratings for SYY (Stability and Sentiment).

The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Want More Great Investing Ideas?

“MUST OWN” Growth Stocks for 2021

How to Ride the NEW Stock Bubble?

5 WINNING Stocks Chart Patterns

Unlock the POWR in Your Portfolio!

 


MCD shares were trading at $228.92 per share on Monday afternoon, up $3.71 (+1.65%). Year-to-date, MCD has gained 7.34%, versus a 9.05% rise in the benchmark S&P 500 index during the same period.


About the Author: Rishab Dugar


Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
MCDGet RatingGet RatingGet Rating
COSTGet RatingGet RatingGet Rating
SYYGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


:  |  News, Ratings, and Charts

Bull Run or Bull S#*t?

The S&P 500 (SPY) has impressively broken out above 4,000. However, it seems that ONLY large caps are moving higher while smaller stocks are actually in the red. Why is this? And what does it mean for the future health of this bull market? Read on below for the answers…

:  |  News, Ratings, and Charts

3 Shipping Stocks Rated Strong Buy

Shipping stocks are buoyant as the global economy begins its rebound from the economic effects of the COVID-19 pandemic. We think ZIM Integrated Shipping Services (ZIM), Matson (MATX) and Global Ship Lease (GSL) are three companies that are well positioned to benefit from a sector resurgence and, as such, warrant a closer look now by investors. Let’s evaluate these names more closely.

:  |  News, Ratings, and Charts

Top 10 Growth Stocks

Let me prove beyond a shadow of a doubt that we are in the midst of a stock market bubble. Even better, let me explain why stocks (SPY) will rise for another 12-24 months so you can ride it higher and then parachute out at the peak. And just for good measure I will share my top 10 stocks for today’s market. Read on below for more...

:  |  News, Ratings, and Charts

Avoid These 3 Cathie Wood Stocks in April

Cathie Wood’s contrarian investment strategy may not be ideal for short-term, risk-averse investors with limited funds because most of Wood’s bets require a considerable holding period. So, we think Wood favorites Shopify (SHOP), Spotify (SPOT), and Zillow (Z), which could witness a pullback in the near term, are best avoided now.

:  |  News, Ratings, and Charts

Top 10 Growth Stocks

Let me prove beyond a shadow of a doubt that we are in the midst of a stock market bubble. Even better, let me explain why stocks (SPY) will rise for another 12-24 months so you can ride it higher and then parachute out at the peak. And just for good measure I will share my top 10 stocks for today’s market. Read on below for more...

Read More Stories

More McDonald's Corporation (MCD) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All MCD News