Market Report: Piggybacking McDonalds

Perhaps you haven’t noticed, but shares of fast-food giant McDonalds (MCD:NYSE) are up 43.8% over the past year -- and there’s no sign of the share price increases stopping anytime soon.

Yesterday, for example, McDonalds reported a blockbuster August same-store sales number, posting a sales increase of 8.1%. Since the consensus projection was an increase of 2-3%, it’s easy to understand why the stock gained 3.3% on the day (and was the main reason why the Dow launched into a 180-point advance).

Why invest in MCD?

For one, McDonalds business model certainly makes sense with a weak dollar.

Secondly, MCD is blowing the doors off overseas -- especially in Asia -- and this protects you against any U.S. “recession” fears.

Third, their new menu consisting of Asian and Southwest salads, premium coffee and low-fat chicken sandwiches is successfully winning back customers from competitors like Wendy’s.

And forth, their August numbers prove that the American consumer has yet to put a dent into their earnings growth (too bad the same can’t be said for Wal-Mart).

All of this certainly builds a strong case for MCD going forward, but here’s the thing: The more powerful play comes in the form of Chipotle Mexican Grill (CMG:NYSE).

You see, McDonalds used to own CMG before spinning it off, which tells me that the same successful management techniques driving McDonalds’ stock values are also applicable to CMG. And if MCD is experiencing unprecedented success, then I bet the same remarkable results will also show up on their leaner, meaner and faster-growing Mexican chain.

After all, Chipotle Mexican Grill shares are up 101% over the past year, and they’re looking to move even higher. So as an investment strategy, I’d consider adding CMG shares to your portfolio.

Or, if you’d like more bang for your buck, you can also add six-month CMG call options, giving you upside exposure going into Q1 of 2008.

Bryan