First Strike is the car I crewed. Now Rich is the driver and the "World Speed and ET Record Holder" (running 295mph in 5.42 seconds)

Racing to the Golden Arches

One of my good friends growing up was Rich. We bowled junior leagues and the Junior Bowlers Tour together. We would practice every chance we got, but our practice sessions would get cut short because he had to leave. I finally asked him why he always needs to get home. He said his Dad owned a race car and he needed to get it ready for a race. He invited me to help. It wasn’t much fun practicing by myself, so I agreed to help. After several late nights of working on the car his Dad asked me if I’d like to be a crew member for his jet powered funny car. That sounded like a lot more fun than my job running a cash register at Rite Aid, so I gave my notice and joined Hanna Motorsports. As it turns out, the race car was sponsored by American Discount Auto Parts (ADAP) which was owned by Rite Aid, so in a way, I still worked for Rite Aid.

 

Working for a race team was a lot more work than I anticipated and very demanding. Typically 40-50 hours in the shop during the week getting the car race ready, then traveling from race track to race track all weekend. I made decent money and was able to save most of what I made because my hotel and meals were covered and I was never home to spend any money. I understood why Rich didn’t have time to practice bowling.

 

After a month of traveling with the race team, I realized there are a lot of McDonald’s restaurants in this country and strategically placed too. It seemed like every time we stopped on the side of the highway to refuel there was McDonald’s. On the way to the racetrack early in the morning, it was McDonald’s for breakfast. We rarely had time for a sit down breakfast. Late at night when leaving the track the only thing open was McDonald’s. Some days I ate breakfast, lunch and dinner at McDonald’s. I quickly got tired of Big Macs. Switched to Quarterpounders, then Chicken McNuggets, and finally the only thing left on the menu was the Filet-O-Fish. At the end of the season I didn’t want to see another golden arch. Today, I can’t stand the smell of McDonald’s and rarely eat in one, but they have a fantastic business and a powerful brand. I think it was Robert Kiyosaki who posed the question in his Rich Dad, Poor Dad book (highly recommend reading it), what business is McDonald’s in? Naturally, most people say the hamburger business, but they are really in the real estate business. McDonald’s has a massive real estate portfolio and some of the most prime real estate locations in the US. They turn around and lease the buildings to franchisees who also pay a franchise fee, and buy their food and supplies from McDonald’s. The franchisees are responsible for hiring and managing the workforce that make and sell the food. McDonald’s sits back and collects royalty fees, rent checks, and payment for food and supplies. What a wonderful business. At one point there were rumors that McDonald’s would spin off its real estate portfolio into a separate company, which gathered a lot of attention. That hasn’t happened yet, but I believe many investors would be very interested in investing in their real estate portfolio.

 

Since the beginning of this year McDonald’s stock price has fallen about 20% from its high of $300. It currently trades around $257 per share. I think a lot of the sell off is due to the rising prices of its menu items. I haven’t purchased a meal at McDonald’s in over 10 years so I couldn’t tell you, but I’ve heard rumors of it costing $12-$15 for a meal. So much for the value menu and saving money. McDonald’s is currently working with its franchisees to advertise and launch a new $5 Meal Deal. If you think that might resonate with consumers and drive the stock price back up to $300 per share, then it might be worth taking a peek at McDonald’s (MCD).

 

MCD’s QuickFS.net ten year overview looks pretty interesting.

 

Revenue - not a lot of growth, but pretty steady in the $20B to $25B range

Profits - increasing most years

Return on Invested Capital - 17.2% (I like to see 15% or more)

Dividends - Lots of them. Paying and raising their dividend for 47 years.

 

Current Annual Dividend = $6.68 per share

Annual Dividend Yield = 2.59% ($6.68 / $257)

 

I'm not all that interested in the food, but the company is very interesting.

 

The last time Costco raised its membership fee was 2017. Typically, Costco raises its membership fee every five years, but they held off for seven years this time. I’m guessing this is due to inflation and Costco’s desire to help its members adjust to the higher prices across all product lines. Costco is one of those rare companies with an extreme focus on finding ways to lower prices and deliver value to its members.

 

The increase in membership fees will take effect September 1, 2024. The Gold Star Membership will increase to $65 from $60. The Executive Membership will increase to $130 from $120. My wife and I are Executive Members and have no plans to stop shopping at Costco despite the increase. We love shopping at Costco. Maybe a little too much at times, but believe they deliver great products at wonderful prices.

 

While I enjoy the treasure hunt and bargain prices in Costco’s stores, their stock price is no bargain at $850 per share. The financials should see a nice improvement with the price increase, but I don’t think it will be enough to make the stock price look attractive. In the meantime, Costco (COST) will sit on my watchlist while I wait for a better entry price. Costco is a fascinating company and very well run. I can’t wait to share this company in a future Spotlight Stock Review.

 

Toward the end of 2023 my brokerage firm, tastytrade, was closing out an incentive program they offered a few years back. They informed me I had some credits that I needed to cash out before the end of the year. I redeemed my credits and it amounted to $300. I decided to open a new brokerage account with my new found money and invest it. It’s just an Itty Bitty account, but it’s something. It reminded me of my early investing days when I could only buy one share of a stock at a time. I looked for high quality companies on sale, and bought these 5 stocks:

I’m planning to hold these stocks for at least five years. I want dividend paying companies to generate passive income over the long haul. The smallest dividend yield was 3% and the highest was 6%, right in the sweet spot.

 

The Itty Bitty Account is humming along nicely. I like the idea of growing a small account again. That’s why I decided to begin a new series called “One Share At A Time.” This is how it works. I’m planning to add $100 to the Itty Bitty Account each week. I will buy one “share” of stock per week and “share” that purchase with you. I’ll be on the lookout for high quality companies on sale. Ideally these companies will have a dividend, but that is not a requirement. If I can’t find a company to buy, the funds will roll over into the next week. Many high quality companies have stock prices greater than $100, so I may need to let funds roll over for a week or two to make the purchase. We'll see how it goes.

 

This is an interesting time to begin this series. We are entering earnings season. Once a quarter companies hold a conference call and let us know their financial results for the quarter. This gives investors a chance to see how the company is progressing toward its annual targets. This is a good time to keep an eye on the companies on your watchlist and portfolio. If the earnings report comes in below expectations, it may create a possible buying opportunity.

 

I’ve been watching Nike for a few weeks and decided to buy one share of Nike at $72.50 this week. Nike (NKE) reported earnings at the end June, sales did not meet investor’s sales expectations and the stock dropped from $94 to $75. I believe Nike’s issues are short-term in nature and they will overcome them with time. Nike is an innovative company with a strong brand and smart management team. I could be completely wrong and the stock price could continue lower. In that case I may look to add more NKE shares at a lower price.

 

 

Feel free to start your own Itty Bitty Account and play along at home. I would strongly recommend paper trading, meaning pull out a piece of paper and record the Date, Company Name, Ticker Symbol, and Entry Price. Then check the current price every couple months and see how it does.

 

Remember this is for educational purposes only. If you decide to do this with real money, please do your own research or consult your financial advisor before putting real money to work.

 

I'd love to hear which stock you selected for your Itty Bitty Account, you can e-mail me at Brian@liquidassetstrading.com.

 

That’s all for this week!

 

Brian