As I mentioned in my post about a deteriorating consumer environment here, I think McDonald's is shaping up to be an excellent play. Earlier in the year, McDonald's (MCD) was touted as a "weak dollar" play due to their extensive international exposure and the massive currency gains they were posting from the exchange rates worldwide. But, things have changed in six months time. Nowadays, a recently strengthening dollar provides currency headwinds for MCD's global business. But, I do not see this as being a major problem because demand and sales should easily overshadow any and all currency implications.

Why might you ask? The answer is simple: consumers worldwide trading down to "cheap" alternatives. McDonald's is the king of cheap. They are a fast-food chain, after all; with a $1 menu to boot. When consumers are in a pinch, they look to save money anyway they can. And, McDonald's allows them to do just that. As I wrote about here, the US economy is accelerating to the downside. Then, add in the fact that Goldman Sachs thinks half the globe is in a recession. Lastly, you've got the former federal reserve chairman Paul Volcker claiming that growth in the US economy will be the slowest of any decade since the Great Depression, as I noted here. Tough times ahead to say the least. The US consumer is in for a wild ride. So, if you're going to play any consumer stock in such a tough environment, make sure it is a company that deals with necessities. McDonald's provides food, and cheap food at that. Don't buy the rationale? Just take a look at McDonald's most recent quarter.

McDonald's delivered yet another dominant quarter last Tuesday. August sales in the U.S. increased 4.5% compared to an analyst expected 3.5% gain. Sales in the Asian Pacific region gained 10% and an 11.6% gain in Europe compared to analyst expectations of only 6% in Europe. On average, analysts pegged McDonald's at a global increase of 4.7%. McDonald's came in with a 8.5% gain globally. Needless to say, it was a dominant quarter. They are winning cash-strapped consumers over in both the US and Europe. And, their market position in Asia continues to be very profitable. Not to mention, MCD is seeing operating margins of 25.78% and a return on equity of 29.71%, both solid numbers which reflect the strong underlying fundamentals.

People were concerned that economic weakness in Europe would hurt sales. But, I argue the opposite.