MCD is a top buy; low valuation and strong margins offer 18% upside plus dividends despite short-term headwinds.

McDonald's performance in 2026 was disappointing. The stock has dropped by more than 18%, and of course I'm disappointed because I ranked McDonald's as one of the top 10 stocks to buy this year .

My ranking of McDonald's in the top ten for 2026 appears to have been premature, as the company has faced implementation difficulties along with macroeconomic headwinds . The management team recently pushed back their estimate for when they will reach their 50,000 store goal from 2027 to 2028.

So, where does that put me in terms of my ranking of McDonald's? Do I still think it's one of the best companies to buy right now, or am I downgrading this company?

So , despite these macroeconomic headwinds, McDonald's business is still growing. Revenues reached $27.7 billion over the past 12 months, and recent innovations have had mixed results.

The company's innovation of a menu under $3 is not working as efficiently as management expected. However, the new beverage initiative has been more successful , with the cold brew coffee and innovative soft drinks achieving better results than management expected.

However, the headwinds facing the sector as a whole are negatively impacting McDonald's. People have less disposable income and choose to eat out less frequently. At the same time, input costs for McDonald's are increasing across the board.

Whether you're talking about minimum wage laws that force McDonald's to pay higher wages, or you're talking about tariffs that have caused price increases for building materials for new sites and food prices as well.

Furthermore, the war in Iran and rising oil prices are putting more pressure, not only on McDonald's operating costs, but also worsening the consumer situation by leaving less money in people's bank accounts to buy and eat out.

Therefore, all of this weighs on McDonald's performance, and considering all these headwinds, McDonald's performance is relatively good.

One of the reasons I initially ranked McDonald's as one of the best stocks you could buy was that they were driving revenue growth, and the business itself was extremely profitable, with an operating profit margin exceeding 45%.

This margin has remained at these levels despite all the headwinds, costs and inputs highlighted previously.

Another reason that made me optimistic about McDonald's is the integration of cutting-edge technology . You have kiosks in stores where people can order their meals instead of ordering from the cashier.

This reduces reliance on labor at each site. As I mentioned, labor costs are increasing, so this was a significant improvement for franchisees. Furthermore, you have the development of artificial intelligence in drive-through service windows, further reducing labor intensity at each location.

On top of all that, you have food delivery networks that are expanding all over the world. In addition, there are robots that deliver food, expanding the reach of each McDonald's location.

Therefore, all these factors contributed to my optimistic outlook on McDonald's stock, but it seems that those developments were delayed due to economic headwinds, and the challenges I mentioned earlier overshadowed the benefits of those investments in technology.

However, McDonald's stock is cheaper than ever. It is trading at a forward price-to-earnings ratio of 17.8. You haven't been able to buy McDonald's stock at this valuation for a very long time .

The valuation has completely collapsed here in 2026. At some points this year, it was trading at a forward P/E ratio of 24, and it has now dropped to 17.8. Investors are aware of all the challenges I mentioned earlier, and they are not interested in getting ahead of the curve and buying McDonald's stock.

Therefore, in light of the latest updates from the McDonald's management team, I have revised my McDonald's estimates downwards. I now expect lower cash flows from McDonald's over the next three years, 26, 27 and 28, and have postponed the benefits of their innovations to begin in 2029.

All of this has had an effect of slightly reducing my intrinsic value of the stock to $295. The current market price is $250. Therefore, I see an 18% upside opportunity for McDonald's stock over the next 12 to 18 months, in addition to dividend payouts.

I think I was too hasty in ranking McDonald's as one of the best stocks to buy in 2026. But I'm still optimistic about the company , and those positive factors I mentioned are still there, and have perhaps even become stronger.

Short-term challenges are likely to continue into 2026, and it is likely to remain a difficult year for McDonald's. I would rank McDonald's as one of the best stocks you can buy right now, although I believe the catalyst for an improved stock price may not happen this year.

Although it may not happen this year, I believe investors have a great opportunity in McDonald's stock when measured on a risk-versus- reward basis, given the relatively low risk of investing in McDonald's stock.