Three Top Restaurant Plays for 2021

National and international fast food chains have entered 2021 in a commanding position to recoup the balance of losses posted in 2020. More importantly, they’re likely to grow market share well above prior highs because tens of thousands of smaller operators have been forced out of business as a result of lockdowns and social distancing. It could take years for a new wave of restaurateurs to obtain financing, given the credit damage caused by bankruptcy filings.

Three top restaurant plays for 2021 offer few unexpected opportunities because they’re all household names that have survived and prospered during the pandemic. These big cap players have also established new delivery channels and expanded drive-through facilities in the last year, putting them in perfect positions to pick up the slack left by the departure of your favorite rib joints and greasy spoons.


Dow component McDonald’s Corp. (MCD) entered a steep correction in the fourth quarter of 2019 and fell to a three-year low in March 2020. The stock completed a round trip into the prior high and broke out in October but the rally failed, yielding mixed action into January. Price action settled on the 200-day moving average in December and has held that level, raising odds it will soon enter a breakout run, possibly fueled by declining infection rates in the United States.

Chipotle Mexican Grill

 Chipotle Mexican Grill (CMG) isn’t well-known in parts of the world but it’s now the second highest-capitalized restaurant chain, behind Mickey D. The burrito purveyor has posted better-than-expected numbers throughout the pandemic and now offers delivery, after resisting that revenue source for years. The stock broke out to an all-time high in December, after a three-month consolidation, and could post outstanding returns for investors in 2021.

Yum China

 Yum China Holdings Inc. (YUMC), Shanghai-based purveyor of KFC, Taco Bell, and Pizza Hut, was spun off from Yum! Brands Inc. (YUM) in November 2016. It’s now a $22 billion operation that’s outperforming the parent, breaking out to a new high in June when China emerged from the COVID-19 pandemic. The stock has continued to post new highs since that time, culminating in Jan. 11’s all-time high at 61.18.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Yum! Brands Hits 52-Week High After Upgrade

Yum! Brands Inc. (YUM) is trading at a 52-week high in the first hour of Thursday’s U.S. session after Wells Fargo upgraded the stock. The holding company for Pizza Hut, Taco Bell, and KFC has suffered through a wild 2020, dumping to a four-year low in March and recouping 100% of those losses into November. However, it hasn’t recovered as quickly as rival McDonald’s Corp (MCD) and is still trading below September 2019’s all-time high near 120.

Pizza Hut Growth Stalls

Buying interest has also lagged Mickey D., with Pizza Hut’s U.S. growth stalling a few years ago due to massive competition for the popular fast food. The pandemic has stoked strong 2020 sales due to the explosion of delivery services but most analysts believe it won’t be sustainable. Meanwhile, Taco Bell and KFC are firing on all cylinders, posting sustained multiyear growth that defies the advice of nutritionists, professors, and other folks who care about our health.

Wells Fargo analyst Jon Tower upgraded Yum! to ‘Overweight’ on Thursday, noting “Coming out of a year unlike any other in modern history for the restaurant industry, we expect chains to benefit from pent-up demand and a consumer who is flush with cash to spend. We think this dynamic sets up particularly well for the casual dining space, with this sub-segment likely to see outsized benefits from independent closures, better in-store operating models, more efficient marketing spend, and a viable newer long-term sales channel”.

Wall Street and Technical Outlook

Wall Street consensus is mixed after a turbulent year, with a ‘Moderate Buy’ rating based upon 5 ‘Buy’, 6 ‘Hold’, and 0 ‘Sell’ recommendations.  Price targets currently range from a low of $97 to a Street-high $125 while the stock has opened Wednesday’s U.S. session just above the median $108 target. Additional upgrades or positive commentary between now and the Feb. 4 earnings report could power a rally into the Street-high.

Yum! Brands has nearly filled the October 2019 gap between 103 and 110. The first sustained uptick above that hole will be highly bullish, raising odds the stock will cover the distance up to August 2019’s all-time high at 119.72. However, accumulation readings are stuck at lower levels and a breakout will set off a bearish divergence, raising odds for a failure. The most bullish scenario, given this configuration, will be rangebound action that gives new investors time to jump on board.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.