Is a big investor circling McDonald's?...

Is a big investor circling McDonald's?... Why billionaires like the Golden Arches... How to invest with Buffett's favorite private-equity firm... Why Buffett bought $11 billion worth of IBM... IBM's plans for the future... From the ground in Kiev... It's not time to invest yet...
 

 Shares of fast-food giant McDonald's are up nearly 5% in the past two days on no news. They rose almost 4% yesterday alone.
 

 As we wrote in the January 29 Digest, Porter believes McDonald's will be one of the best recommendations of his career.
 

He re-recommended the company in the November issue of his Investment Advisory. Shares had gotten hammered as the market worried the business was dying due to a preference for healthier "fast casual" restaurants like Chipotle. Plus, the company faced a public relations crisis in China over serving contaminated meat.
 

 But we weren't worried. We knew these types of crises eventually pass. As Porter wrote, "betting against sugar and fat is a losing proposition." After all, McDonald's is the largest restaurant in the world in terms of revenue.
 

 The stock got a boost in December on rumors that hedge-fund billionaire Bill Ackman – an activist investor with a stellar track record – took a position in the company.
 

McDonald's shares surged 5% higher in late January following news that CEO Jim Skinner was stepping down. That left the company more vulnerable to an activist campaign by Ackman or another big investor.

Another activist fund, Jana Partners, already owns a big stake in the fast-food giant.
 

 But why the big boost recently? Is Ackman going in for the kill? Perhaps investing legend Warren Buffett is "hunting elephants," as he likes to say...
 

 

 At the Harbor Investment Conference earlier this month, Ackman told Bloomberg, "If [Brazilian private-equity powerhouse] 3G ran McDonald's, we'd own the stock for sure."
 

3G owns Burger King, Heinz, and played a major role in the merger of Anheuser-Busch InBev. Run by Jorge Lemann, the company is heralded for its operational prowess and ruthless cost-cutting. Its deal-making abilities are so good that even Buffett backs 3G.
 

 Another hedge-fund titan, Glenview's Larry Robbins, also spoke at the conference. He said Glenview took a small position in McDonald's.

In 2005, Ackman proposed an activist to campaign to McDonald's for the company to spin off its real estate assets... He said the company should split into two companies – the franchisor of the brand and a landlord that leases real estate to franchisees.

The landlord business, according to Ackman, could achieve margins of 70%-90%. The franchise business could achieve margins of 30%-50%. McDonald's current operating margin is 29%.
 

 Robbins said Ackman's plans are still applicable today.
 

He believes a more aggressive capital structure would help unlock value... "Ninety billion is not beyond the reach of creating value for shareholders," he told the audience.
 

 Meanwhile, you can invest alongside Buffett with 3G.
 

3G holds Burger King and Canadian coffee chain Tim Hortons in a publicly traded vehicle called Restaurant Brands International (QSR).

Buffett helped finance Burger King's acquisition of Tim Hortons (when Burger King was its own publicly traded company). And Buffett owns more than 4% of Restaurant Brands International.
 

 On the topic of Buffett, he recently announced Berkshire Hathaway invested another $11 billion in tech icon IBM on air with CNBC. We told you about Buffett's increased stake – and why we're still bullish on "Big Blue" – in the February 18 Digest.
 

 On CNBC, Buffett gave some clues as to why he likes IBM today... and why he waited so long to purchase shares of the blue-chip company. From Buffett (edited from his original TV appearance)...
 

Well, I didn't buy railroad companies for a long time, either... I've had two interesting incidents in my life connected with IBM, but I've probably read the annual report of IBM every year for 50 years. And this year it came in on a Saturday, and I read it. And I got a different slant on it, which I then proceeded to do some checking out of. But I just read it through a different lens.

 Buffett said he was impressed with how well IBM laid out its future plans. As we discussed in that Digest, the company is investing billions of dollars in higher-growth and higher-margin sectors like cloud computing. From Buffett (again edited for syntax)...
 

I don't think there's any company that I can think of, big company, that's done a better job of laying out where they're going to go and then having gone there. They have laid out a road map and I should have paid more attention to it five years ago where they were going to go in five years ending in 2010.   Now they've laid out another road map for 2015. They've done an incredible job. First, Lou Gerstner, when he came in, he saved the company from bankruptcy. I read his book a second time, actually, after I read the annual report. You know, "Who Said Elephants Can't Dance?"   I read it when it first came out and then I went back and reread it. And then we went around to all of our companies to see how their IT departments functioned and why they made the decisions they made. And I just came away with a different view of the position that IBM holds within IT departments and why they hold it and the stickiness and a whole bunch of things.

 On a separate note, Buffett said he appreciated how IBM "treats" its stock...
 

The other thing I would say about IBM is that a few years back, they had 240 million options outstanding. Now they probably are down to about 30 million. They treat their stock with reverence, which I find is unusual among big companies. They are thinking about the shareholder.

 Extreme Value analyst Mike Barrett echoed Buffett's sentiments in the January 21 Digest...
 

IBM also continues to reward its shareholders. In 2014, the quarterly dividend grew 16% and the share count fell by 8%. Most companies haven't reduced their share count 8% over the past decade, let alone the last year. During yesterday's conference call, [CFO Martin] Schroeter reported that IBM's share count has declined an incredible 58% since 1995.

 At its annual meeting with analysts today, IBM reiterated its goal of shifting focus to new lines of business. The company said it would shift $4 billion in 2015 spending to "strategic imperatives" like the cloud, mobile, analytics, social, etc.

CEO Virginia Rometty also set a growth target for the new segments of $40 billion in combined annual revenue by 2018 – more than 40% of the entire company's expected revenue.

It's a lofty goal... Those businesses generated $25 billion in revenue last year (only 27% of total revenue). But we have faith.
 

 We received a note from Bill McGilton, a researcher on Porter's team, who currently resides in Kiev, Ukraine. Ukraine's currency – the hryvnia – is getting crushed. The country is panicked as it continues to grapple with Russia. We've written more about its geopolitical strife in past Digests (here and here). From Bill...
 

It's way too early to purchase anything here, in my opinion. It will get much worse before it gets better.   The hryvnia continues to weaken. The spread on hryvnia to U.S. dollars hit 34 hryvnia (for selling a dollar) to 39 hryvnia (for buying a dollar). But the reality is, it's almost impossible to buy dollars. If you want to exchange dollars black-market style, you will get around 40 hryvnia to the dollar. Today, the spread inexplicably went back to 28-32. The bottom line is that no one can buy dollars.

 This is what happens when people lose faith in a currency. They will do anything to dump it. Take a look at this chart of the hryvnia-to-dollar ratio. It's an incredible move for a currency...
 

Bill also says that the Ukrainian people aren't happy with the government... and it's starting to show...
 

Walking outside on the main street of Kreschatik, there was a crowd of protestors who were not happy with the current government. The number of people protesting is getting bigger each time. Despite a lot of rhetoric, the new government has not started the process of serious reform, which the country desperately needs. The country is paralyzed by cronyism.   There is a lack of understanding of free markets and the thought process that the government can mandate something and it will just happen is prevalent.   Meanwhile, the economy is getting worse. Every week, more and more storefronts are closing. It is only a matter of time before serious protests against the current government erupt, as the situation for most Ukrainians is getting much worse.   Opportunities to invest in Ukraine require a political solution to the war and the start of meaningful reform. Until then, stay away.

 New 52-week highs (as of 2/25/15): Brookfield Asset Management (BAM), ProShares Ultra Nasdaq Biotech Fund (BIB), CME Group (CME), Dollar General (DG), Expeditors International of Washington (EXPD), SPDR S&P International Health Care Sector Fund (IRY), and ProShares Ultra Health Care Fund (RXL).
 

 In today's mailbag, a question about investing in retirement accounts. The mailbag has been quiet lately. Tell us about the big winners you're sitting on. Let us know if something we've written has ticked you off. Send us your questions and comments to feedback@stansberryresearch.com.
 

 "I recently changed jobs and now have a 401k that I can contribute to and my employer matches up to 5%. I'll definitely be taking them up on that, but I was looking for any research you have regarding 401k programs. I currently can self-direct and have 19 options to choose from. Essentially they are varying stock funds, bond funds, a money market fund and a precious metals fund. The fees range from 1.00% up to 2.04% annually. Any research in general would be great! Thanks." – Paid-up subscriber Tony

Goldsmith comment: First off, great call on maxing out your 401(k) and employee match. If someone is giving you free money, you should take it. And if you have the chance to shield cash from the government, you should do it. Unfortunately, we don't offer any research for 401(k) investments. Our own Dr. David "Doc" Eifrig recently wrote a DailyWealth essay about the benefits of opening an individual retirement account, which you can read right here.

In general, Doc's Retirement Millionaire advisory is a great place to start if you're just getting started managing your own investments. He gives his subscribers economic commentary, asset allocation guidelines, and stock recommendations that you could use to mirror the options that are available in your 401(k). Plus, a subscription costs less than $1 per week. You can learn more about Retirement Millionaire right here.

Regards,

Sean Goldsmith

Delray Beach, Florida

February 26, 2015