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Economic expansion this year will grow at its slowest pace since the global financial crisis, with a risk that the slowdown could turn into contraction in 2020, according to the United Nations Conference on Trade and Development (UNCTAD). Many chief financial officers (CFOs) at S&P 500 companies share a similar viewpoint. Of CFOs, 53% expect the United States to enter a recession before the 2020 presidential election, a Duke University/CFO Global Business Outlook survey conducted in September revealed, per Business Insider.
If economic conditions do deteriorate, investors may regain their appetite for fast food stocks as they seek shelter in reliable businesses that pay good dividends. Moreover, while restaurant same-store sales contracted 0.4% in the third quarter, they inched 0.1% higher in September, hinting that discerning consumers may be seeking cheaper food options.
From a charting perspective, three leading fast-food stocks – McDonald's Corporation (MCD), Darden Restaurants, Inc. (DRI), and Restaurant Brands International Inc. (QSR) – all trade near technical support and appear ready to serve up gains in the months ahead. Below we take a closer inspection of each issue and explore possible trading tactics.
McDonald's Corporation (MCD)
McDonald's, arguably the world's most recognized fast-food brand, offers a uniform value-priced menu with minor regional variations across 38,000 locations in 120 countries. The maker of the iconic Big Mac reported third quarter (Q3) profit of $2.11 per share on revenues of $5.3 billion. Despite both figures falling slightly short of Street estimates, the company said that its global same-store sales were up 5.9% during the period – the 17th consecutive quarter of positive comparable sales. The fast food giant continues to position for the future, rolling out self-order kiosks, curbside pick-up through mobile ordering, and tests of meat-alternative products. McDonald's stock has a market capitalization of $147.80 billion, issues a 2.55% dividend yield, and is up 11.56% year to date (YTD) as of Oct. 28, 2019.
The company's share price trended sharply higher between February and July before topping out in August. Price dropped below the 50-day simple moving average (SMA) in September, with falls accelerating after McDonald's quarterly earnings report. The retracement now finds a zone of support from two horizontal trendlines and the 200-day SMA. However, traders should consider waiting for a candlestick reversal pattern, such as a hammer, before entering a trade. Those who take a long position should limit downside by using a $5 stop-loss order and targeting an initial move to overhead resistance at $210.
Darden Restaurants, Inc. (DRI)
Owner of popular restaurant brands LongHorn Steakhouse and Olive Garden, Darden Restaurants operates full-service restaurants in the United States and Canada. The Orlando-based company also continues to expand its smaller, faster-growing specialty restaurants that include Yard House, The Capital Grille, and Bahama Breeze. The $13.78 billion company delivered Q1 fiscal 2020 adjusted earnings of $1.38 per share, topping analysts' forecast by two cents and logging a year-over-year (YOY) improvement of 3%. Same-store sales across the company's restaurants posted a modest 0.9% gain, with LongHorn leading this metric – seeing a 2.6% increase from the year-ago quarter. As of Oct. 28, 2019, Darden stock pays a dividend yield of 3.19% and is trading almost 16% higher this year.
Since forming a double top pattern between July and September, Darden shares have fallen below the closely watched 200-day SMA but have leveled out at $110, where price encounters vital support from a horizontal line extending back over the past 12 months. Late last week, the moving average convergence divergence (MACD) line crossed above its signal line to confirm a recent uptick in the stock's price. Traders who enter here should think about setting a stop beneath this month's low at $108.57 and placing a take-profit order near the double top pattern's twin peaks between $125 and $127.50.
Restaurant Brands International Inc. (QSR)
With a market cap of $17.49 billion and offering investors a dividend yield of nearly 3%, Restaurant Brands International owns, operates, and franchises quick-service restaurants under the Tim Hortons, Burger King, and Popeyes brand names. Its restaurants are known for their coffee, donuts, bagels, hamburgers, and French fries. Wall Street expects the 65-year-old restaurant operator to generate earnings of 72 cents per share in the September quarter, indicating impressive YOY growth of 14.3%. Meanwhile, analysts forecast the company's top line to increase by 6.3% from the year-ago quarter. The fast food stock's leading franchise, Burger King, recently formed a partnership with Uber Eats – part of ride-sharing firm Uber Technologies, Inc. (UBER) – to expand its delivery options, making its flagship Whopper sandwich conveniently available via the click of an app. Performance wise, Restaurant Brands has outperformed the restaurant industry average YTD as of Oct. 28, 2019, returning 33.75% vs. 12.40%.
Like the Darden chart, Restaurant Brands has also forged a double top over the late summer/early fall months. After a 15% retreat from its 52-week high, the company's share price currently finds crucial support from several previous reactionary swing points and the 200-day SMA at $67.50. Those who decide to take a bite of the stock at these levels should look for a retest of major overhead resistance at $77.50. Keep risk controlled by cutting losses if price fails to hold above the Oct. 23 low at $66.82.
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October 28, 2019 at 10:02PM
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Gains May Be on the Menu for These 3 Fast Food Stocks - Investopedia
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