Not only has McDonald's (NYSE: MCD) redefined the restaurant industry over its long and successful history, but its stock has rewarded shareholders with both appreciation and a sound dividend. Times, however, are changing, so we asked three of our Foolish investors for stocks that have and will continue to put McDonald's to shame. The stocks they chose include cloud leader Microsoft (NASDAQ: MSFT), streaming video mainstay Netflix (NASDAQ: NFLX), and online search king Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).
The future is now
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Tim Brugger (Microsoft): Over the past 10 years, McDonald's stock has outperformed Microsoft's 190% to 157%, which raises the question: Why does the latter earn a spot on this list? Because Microsoft's 166% return over the past five years blows the doors off McDonald's 77%, and all signs point to Microsoft extending its stock performance lead over the fast-food giant for years to come.
Its software-as-a-service (SaaS) offerings delivered via the cloud have already become the foundation for future growth. With an annual run rate of over $18.9 billion as of last quarter -- which will likely climb to $20 billion plus this quarter -- Microsoft's cloud revenue is nearly unmatched in a market that virtually all pundits agree has limitless upside.
Microsoft's $23.32 billion in total revenue last quarter was an impressive 13% increase year over year led by its meteoric jump in SaaS sales on its Azure cloud platform. Though Azure sales rose 97%, it was the 43% increase in Office 365 commercial and 74% jump in Dynamics 365 revenue, to name but a couple, that demonstrate how well Microsoft is delivering on its transition to cutting-edge markets.
The cloud isn't the only area in which Microsoft's top and bottom lines will continue to grow. Artificial intelligence (AI), augmented reality (AR), and "smart" speakers, are just a few high-growth markets where Microsoft is also taking a leadership position. Toss in its 2.15% dividend yield alongside its multiple growth opportunities and Microsoft will continue to outpace McDonald's long into the future.
Streaming across the globe
Keith Noonan (Netflix): Since Netflix went public in 2002, its stock has gained more than 17,000% while McDonald's has notched total returns of roughly 730% across that stretch. Of course, that's a window of comparison that favors the streaming company, but looking at McDonald's roughly 22,200% total returns since the fast-food empire went public in 1965 should give you an idea of just how quickly Netflix has grown. As impressive as its expansion has been, it looks like the company still has room to run.
The stock recently hit new all-time highs following quarterly results that delivered subscriber additions and net income that were significantly above the market's expectations. In the three-month period ended Sept. 30, the company added 5.3 million new members to reach 109 million members worldwide, and there's still a lot of growth ahead.
Its rate of new member additions has increased dramatically as it has focused on building its international audience -- with new members up 53% year over year last quarter and 23% year to date. Also encouraging is the fact that Netflix has already made most of the necessary infrastructure investments to support operations in its newer markets. Regionally tailored content will be an ongoing expense, but there's a good chance that its international segment will post improving margins going forward.
With its audience growing at a rapid clip and the potential for additional price hikes down the line, Netflix has avenues to earnings growth that could add new chapters to its stock's incredible run.
A titan of a different kind
Chris Neiger (Alphabet): Over the past five years, McDonald's share price has seen amazing gains of more than 70%. That's impressive coming from a titan of the fast-food industry, but it pales in comparison to tech giant Alphabet's 190% gains over the same period. Sure, Alphabet and McDonald's share few similarities when it comes to their businesses, but both are leaders in their respective markets -- and Alphabet is on track to keep its returns growing strong for many more years to come.
Aside from its near-monopoly in the online search business, Alphabet is pursuing a variety of new tech endeavors that should keep it far ahead of its competitors. For example, it's investing heavily in artificial intelligence by snatching up smaller AI companies, building its own AI processor, releasing its Google Assistant on Android smartphones, and launching a smart speaker lineup with its virtual assistant baked into the devices.
Alphabet is also poised to dominate the driverless car market through its autonomous car company, Waymo, which is already conducting public tests of its technology as it works toward a driverless ridesharing service. Additionally, Alphabet's Google has its sights set on the cloud computing market, and executives have said that Google's cloud business could become bigger than its advertising segment by 2020.
AI, driverless cars, and cloud computing have a combined market size of about $520 billion between now and 2035, and all represent huge opportunities for Alphabet going forward.
With Alphabet's growing list of tech opportunities, coupled with the stability of its advertising business, its stock should continue to easily outpace the market -- as well as McDonald's gains -- for years to come.
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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Chris Neiger has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. Tim Brugger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Shopify. The Motley Fool has a disclosure policy.