In early June, companies with December year-ends will release their 2009 11-K reports. You can be sure there will be a lot of smiling faces this time around with most 401(k) plans performing exceptionally well this past year. One plan and company I'm particularly impressed with is McDonald's (NYSE:MCD). McDonald's limits employee's purchase of company stock to 20% of their annual contribution. It's a sensible limitation that has reduced the plan's overall returns in the last five years due to McDonald's five-year streak of positive returns. That's okay. Someday this will work in its favor as the stock price cools. In the meantime, have a look inside its 11-K. There are a number of good investment ideas.

IN PICTURES: Break Into Forex In 12 Steps

Losses in The Rearview Mirror
GuidedChoice.com is the advisor responsible for the investment choices in McDonald's profit sharing and savings plan. GuidedChoice.com, it is worth mentioning, counts Dr. Harry Markowitz - the man behind modern portfolio theory - among the founders. They've done a heck of a job. In 2008, when the S&P 500 dropped 38.5% and U.S. pension funds lost 26.2%, its investments dropped just 13.2% thanks to a total return of 8.3% for its stock, which accounts for 55% of the plan's total investments. In fact, McDonald's stock is currently working on a sixth consecutive year of positive returns and has a 21.2% average annual return compared to just 1.1% for the index. Even though its stock was up just 3.7% in 2009, the remaining assets should have generated plenty of returns for the plan this past year. We'll know how much soon enough.

Participation Rate
According to 401(k) ratings group BrightScope.com, McDonald's plan gets a 57 rating putting it right in the middle of its peer group. Interestingly, BrightScope believes the quality of the investment options is in the top 15% of all 401(k) plans. Further, it gives McDonald's management high marks for its generosity. Where it loses marks is in the participation rate of employees. While the average account size is high at $50,000, unfortunately only 51,000 employees are enrolled. A 13.2% participation rate given the performance of the plan as well as the extra funds made available for employees beyond what most companies provide is simply perplexing. If you're a McDonald's employee and are eligible to enroll in the plan and currently aren't, you owe it to yourself and your family to sign up immediately.

Five Largest Common Stock Holdings

Company Value 2009 Return 5-Year Average
Hewlett Packard (NYSE:HPQ) $3.39M 42.8% 21.7%
Cisco (Nasdaq:CSCO) $3.37M 46.9% 9.5%
Gilead Sciences (Nasdaq:GILD) $3.26M -15.4% 16.1%
Qualcomm (Nasdaq:QCOM) $3.14M 31.0% 3.8%
Pepsico (NYSE:PEP) $3.06M 14.3% 5.7%
McDonald\'s (NYSE:MCD) $1.26B 3.7% 21.2%

The Usual Suspects
Its common stock holdings are routine. The largest of them listed above have all done well in the past five years. At the end of the day, boring is good when you are talking about retirement funds. There is, however, a few interesting selections that you might consider should they still be among the holdings in the new report. For instance, the plan owned $361,000 in K-Swiss (Nasdaq:KSWS) at the end of 2008. The athletic footwear company saw its stock drop for four consecutive years until pulling out of its death spiral in 2010 and is up 40% year-to-date. Another interesting holding is Masco (NYSE:MAS), maker of consumer products for the home including KraftMaid cabinets which you can see on ABC's Extreme Makeover: Home Edition. It's had a tough go of it during the housing downturn but seems to be recovering slowly but surely. Year-to-date the stock is up 34%, much better than the -7.3% annual return in the previous four years. Lastly, I recently wrote about the gold star management at Heartland Express. They're the real deal. (Check out the article. Read Heartland's Gold Star Management.)

Bottom Line
While I haven't uncovered anything earth shattering in this article, I do think it highlights the need for plan holders to investigate what's inside their company's 401(k). In the case of McDonald's, it's nothing but goodness. (Learn some sensible strategies for making your hard-earned savings last for as long as you need them. Refer to Managing Income During Retirement.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center