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Cramer’s Rules for Restaurant Investing

Monday, 11 Feb 2008 | 6:58 PM ET
Cramer: McDonald's a Buy
When analysts abandon good companies with great stocks for bad reasons after looking at one scary data point, you want to buy, according to Mad Money's Jim Cramer. He recommends McDonald's.

You need more than just one month’s worth of data when trading restaurant stocks, Cramer said Monday. One small stat rarely paints an accurate picture of the overall business, and you can lose money if you think it does.

Investors who trusted Bear Stearns’ recent McDonald’s downgrade probably learned this lesson the hard way. Bear knocked MCD down a rung to "peer perform" from "outperform" on Jan. 29 after December same-store sales came in below expectations, even though the fast-food chain’s fourth quarter was solid. The negativity hurt the share price – that is, until January same-store sales last Friday showed 5.7% growth. Now MCD is up about $6 since the reaction to the Bear Stearns downgrade.

Not only did Bear ignore one of Cramer’s rules for investing, the firm ignored on key fact about McDonald’s: The company’s enjoying some fantastic growth overseas. So weak U.S. sales wouldn’t cut into MCD’s bottom line as much as expected.

Something similar happened to Darden , parent company of Red Lobster and Olive Garden. An analyst downgraded the stock only minutes before DRI released better-than-expected guidance.

So what’s the lesson learned? When analysts abandon good companies with great stocks for bad reasons – like one scary-looking data point – you want to buy it, Cramer said. And that goes for McDonald’s right now, even though the stock’s jumped in price a bit.

Jim's charitable trust owns McDonald's.

Questions for Cramer? madmoney@cnbc.com

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