While Wall Street's confidence in consumers continues to grow
with practically every economic report, there is not much faith in
retail stocks. In fact, analysts at a recent
were mostly "neutral" on these names for 2011, despite retail being
one of the best-performing sectors of 2010. What's more, the
restaurant and casual dining stocks within the sector appear to be
doubly overlooked, given the wealth of investor pessimism amid
strong technical backdrops.
For instance, the PowerShares Dynamic Food & Beverage (
) exchange-traded fund (
) has rallied more than 27% during the past 52 weeks, compared to
the S&P 500 Index's (SPX) gain of roughly 11.5% for the same
time frame. Technically, the ETF has rallied steadily along support
at its 10-week and 32-week moving averages since the March 2009
bottom. What's more, the ETF has toppled long-term resistance at
the $18 level, a region that created a ceiling for PBJ between
April and June in 2007. The area should now provide a springboard
of support for the ETF.
Despite this strong price action, investors remain quite bearish
on PBJ. For instance, 184, or 83%, of the 337 ratings on PBJ
holdings are "holds" or worse, according to
data. Furthermore, short interest on the ETF has rocketed nearly
500% higher during the most recent reporting period. Should the ETF
continue to push higher, we could see these bears abandon their
losing positions, thus resulting in a significant tailwind for the
The Cheesecake Factory Inc.
The Cheesecake Factory Incorporated (
) owns and operates more than 140 casual-dining restaurants in 35
states that offer about 200 menu items ranging from sandwiches and
salads to steaks and seafood, according to
. Naturally, the company specializes in cheesecake, which comes in
about 40 varieties, including Chocolate Tuxedo Cream and Kahlua
Cocoa Coffee. In addition to its eponymous restaurant chain, the
company operates more than a dozen Grand Lux Cafes.
Technically speaking, CAKE has been quite the outperformer
during the past 52 weeks, soaring more than 45% during this time
frame. This strength has waned in recent weeks, but the stock has
pulled back to potentially stout support in the $30-$31 region.
This area is currently home to CAKE's rising 10-week moving
average, and was also the site of solid resistance in
October-November 2006, April 2007, and May 2010. As such, this
region could now switch roles and provide a springboard of support
for the equity.
Despite this strong price action, investors are having a hard
time accepting the stock's current uptrend. Among options traders,
the stock's Schaeffer's put/call open interest ratio (SOIR) arrives
at 1.36, as puts outnumber calls among near-term options. What's
more, put buying is growing in popularity on the International
Securities Exchange (ISE) and Chicago Board Options Exchange (
), as nearly three puts were bought to open for every one call
purchased during the prior two weeks.
Analysts are also betting against CAKE, as 19 of the 27
brokerage firms following the shares rate them a "hold" or worse.
The firm also sports a 12-month price target of $31.90 per share,
- a mere pittance of a premium compared to the stock's close at
$31.10 on Thursday. As such, any upgrades or price-target increases
could provide additional buying pressure for the security.
Finally, short interest accounts for a sizable 13.36% of the
stock's total float. However, the number of CAKE shares sold short
have dropped by nearly 9% during past month. Should this
short-covering trend gain momentum, it could provide additional
fuel for the equity's rally.
Traders looking to take advantage of an unraveling of the
bearish sentiment levied against CAKE should consider the stock's
February 30 call.
Chipotle Mexican Grill Inc.
Another restaurateur with excellent bullish prospects is
Chipotle Mexican Grill Inc. (
). According to
, Chipotle develops and operates fast-casual, Mexican food
restaurants in 35 states throughout the United States, the District
of Columbia, and Ontario, Canada. The company operates roughly 956
restaurants, and offers a focused menu of tacos, burritos, salads,
and burrito bowls.
From a technical perspective, CMG has rallied more than 162%
during the past year, and has bested the SPX by nearly 16% on a
relative-strength basis during the prior 60 trading days. The
shares have rallied steadily along support at their 10-week and
20-week moving averages since December 2009, surging past the
psychologically significant $200 level in the process. Currently,
the shares are in the process of rebounding from support in the
$210-$215 region, which is currently home to CMG's rising 80-day
On the sentiment front, there are plenty of CMG bears that could
be shaken out of their short positions should the shares extend
their current rebound. Starting with options traders, puts are
quite popular among CMG speculators, with the equity's SOIR of 1.49
ranking above 71% of all those taken during the past year.
That said, sentiment may be shifting among options traders.
CMG's ISE/CBOE 10-day call/put volume ratio of 1.18 arrives above
78% of all those taken during the past year, pointing toward a
growing preference for bullishly oriented call options. Should call
buying gain additional traction, it could provide lift for the
There is also room for potential upgrades on CMG. According to
, 15 of the 25 analysts following the shares still rate them a
"hold." If any of these fence-riders decide to upgrade the
security, it could bring more buyers to the table. Traders looking
to take advantage of an extended rally by the equity should
consider a February 210 call.
Brinker International Inc. (EAT)
One final dining stock to consider is Brinker International Inc.
(EAT). According to
, Brinker is the world's No. 3 casual-dining operator in terms of
revenue, with more than 1,650 locations in about 30 countries. Its
flagship Chili's Grill & Bar chain boasts more than 1,450
outlets, and trails only Applebee's as the largest full-service
restaurant chain. The company also operates Maggiano's Little
Italy, but sold its On the Border Mexican Grill & Cantina
restaurant brand to OTB Acquisition LLC on June 30, 2010.
Technically speaking, the stock is on solid footing, having
rallied more than 47% during the prior 52 weeks. This rally has
placed EAT above formerly stiff resistance in the $20-$21 region,
an area that had capped the shares since June 2008 until their
breakout in early December 2010. Additionally, EAT enjoys the
support of its 10-week and 20-week moving averages, which have
ushered the stock higher since August 2010.
Checking in with investor sentiment, options traders are quite
bearish toward EAT, with the stock's SOIR of 1.99 indicating that
puts nearly double calls among options with less than three months
until expiration. This ratio also arrives at an annual peak,
meaning that speculators have not been more bearishly aligned
during the past year. Furthermore, EAT's ISE/CBOE put/call ratio
arrives at a whopping 23.67, as calls bought to open have
outnumbered puts purchased by a factor of more than 23 to one
during the prior two weeks.
Finally, short interest accounts for a respectable 7.3% of the
stock's total float. That said, short sellers appear to be in the
process of liquidating their positions, as the number of EAT shares
sold short dropped by 27% during the prior month. Given this data,
investors might want to consider a February 20 call to take
advantage of a potential unwinding of this negativity.
The winter 2011 issue of
magazine is now available here.
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