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