Take a Bite of These Tasty Restaurant Plays

The rapid rise of crude oil over $100 was supposed to signal the death knell for restaurant stocks, but consumer plays continue to outperform the broad averages by a healthy margin. The group's resilience is warning economic bears and market skeptics not to push their luck, because strong discretionary spending rarely coincides with a major downturn. But not all sector components are sharing the wealth equally these days. For example, Dow component McDonald's (MCD) has hit a brick wall of selling pressure after posting an all-time high in January, with the decline since that time highlighting the perils of overweighted European exposure while that part of the world spasms through its sovereign debt crisis. Yum! Brands (YUM) Source: eSignal View Chart » View in New Window » Yum! Brands (YUM), purveyors of KFC, Taco Bell and Pizza Hut, has focused its sights further east in recent years, with rapid Chinese growth paying major dividends in this amped-up 2012 market. It seems our Asian friends can't get enough hot-dog-stuffed pizza crust and cheesy gordita crunch, despite the direct path to capitalist decadence and a Lipitor prescription. The company's decade-long rally paused near $57 in July of last year, yielding a vertical selloff into the upper $40s that marked an excellent buying opportunity ahead of a December breakout to an all-time high. It's risen more than 25% in the past four months, completely ignoring the recent market downturn, and posted another new high in Friday's session. Wednesday's earnings should confirm a rapid growth curve and strong 2012 guidance. But the stock is overbought after its recent run, and I'd expect a sell-the-news reaction. Welcome that decline, if it happens, because an orderly pullback to new support near $70 should let sidelined investors get on board ahead of further gains into the summer. I could spend the rest of this column talking about Chipotle (CMG); that powerhouse has risen more than 100 points since the start of January. But it's heavily overbought and in need of a long rest, so I'll pass on a closer look and save my analysis for three lesser-known eateries that could enjoy rapid gains in the next three to six months. Dunkin Brands (DNKN) Source: eSignal View Chart » View in New Window » Dunkin Brands (DNKN) is benefiting from brand-name recognition and perfect positioning in the coffee wars that have consumed billions of investment dollars in the past few years. But it's taken time for this old-school eatery to heat up after topping out just four days after its July 2011 initial public offering. Two big secondaries since that time have established a solid shareholder base, with price ticking back to the 2011 high in mid-March. It sold off from that price level, established a higher low at the 50-day exponential moving average (EMA) and surged up to resistance last week, completing a cup-and-handle pattern that shows a measured move target above $41. The company reports earnings on April 26. Ruth's Hospitality (RUTH) Source: eSignal View Chart » View in New Window » A higher-end clientele is paying off at Ruth's Hospitality (RUTH), with that demographic resuming more extravagant dining habits. A post-bear-market recovery topped out at $6.60 in April 2010, with the stock failing a test at that level in July of last year. It had better luck in March, finally breaking out and hitting a three-year high. The uptrend stalled two weeks ago, with price pulling back in an orderly decline. A trip to the 50-day EMA will also test breakout support as well as a rising trendline that goes back to last November. That level looks like the right place to get on board, ahead of a rally that could eventually reach double digits. The company reports earnings on April 27. Tim Horton (THI) Source: eSignal View Chart » View in New Window » We finally come to Tim Horton (THI), a Canadian mid-cap version of Starbucks (SBUX) with a dash of Dunkin thrown into the mix. It rallied above the 2007 high at $40 in late 2010 and entered a powerful uptrend that stalled just above $50 in May 2011. The stock ground sideways at that price level for 10 months and broke out in March, hitting an all-time high. A pullback ended last week at horizontal support that aligns with the 50-day EMA. The stock bounced into Friday's close, retaining the majority of its weekly gains despite two selling waves in the broader market. On Balance Volume (OBV) has been ticking lower since February, pointing to a stealth correction that may now be coming to an end. Pay attention to the green OBV trendline; a breakout will issue a buy signal that may not confirm immediately in the price action. Once the turnaround is under way, the stock should rally quickly above the March high and resume an upward trajectory that may reach $60 later in the second quarter. The company reports earnings on May 10. _______ Editor's Links More consumer stocks: Add Some Color to Your Portfolio Long Shot: K-Swiss Faces an Uphill Battle

Take a Bite of These Tasty Restaurant Plays

Forget Chipotle -- these three lesser-known eateries could enjoy rapid gains in the next three to six months.

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