Data compiled by Wells Fargo restaurant analyst Jon Tower shows that restaurant industry same-store sales in election years have unperformed non-election years by 40 basis points since 2005, per Yahoo! Finance. Interestingly though, the restaurant group has generally surpassed broader stock market returns in election years since Bill Clinton trumped Republican nominee Bob Dole in 1996. Tower's research noted that restaurant stocks added as little as 4% in 2016 and as much as 28% in 2000.
According to the analyst's data, the only abnormality occurred when President Obama won the election in 2008 – that year, the restaurant segment plunged 47% amid softening consumer spending at the height of the global financial crisis. By comparison, the S&P 500 shed 38% during the same period.
Below, we take a more detailed look at three quality restaurant companies and outline several food-for-thought trading ideas.
YUM! Brands, Inc. (YUM)
Louisville, Kentucky-based YUM! Brands, Inc. (YUM) operates and franchises quick-service restaurants globally. The $32.25 billion restaurateur holds iconic fast-food brands including KFC, Pizza Hut, and Taco Bell. Innovative food options continue to gain traction at YUM!, with the company this year planning to roll out a Beyond Meat, Inc. (BYND) plant-based chicken product across 66 of its KFC stores. The firm recently raised its quarterly dividend to 47 cents per share, taking its annual yield payout to 1.8%. YUM! stock has gained 16.88% over the past 12 months and is trading nearly 6% higher year to date as of Jan. 30, 2020.
YUM! shares slumped almost 20% between September and November. Since then, the price has staged a steady recovery, coming within several pennies of closing above the 200-day simple moving average (SMA) in Wednesday's trading session. Those who buy here should consider booking profits on a test of the double top high at $117.50 while protecting capital with a stop-loss order positioned underneath the Jan. 27 low at $102.63.
Darden Restaurants, Inc. (DRI)
Darden Restaurants, Inc. (DRI) operates full-service restaurants in the United States and Canada. The company, which owns well-known brands such as Olive Garden and Cheddar's Scratch Kitchen, delivered a 5% bottom-line surprise in the fiscal second quarter (Q2). Analysts expect earnings per share (EPS) in the upcoming quarter to come in at $1.87, improving from the year-ago reported figure of $1.80. Trading at $119.21, with a market capitalization of $14.49 billion and a healthy 3% dividend yield, Darden stock has jumped more than 10% in January, outperforming the restaurant industry's average by 6.5% over the same period as of Jan. 30, 2020.
The Darden share price has carved out a bottoming "W" pattern over the past four months, indicating further gains as the year progresses. Wednesday's close above the pattern's neckline may accelerate upside momentum that results in an imminent move to key resistance around the July and September swing highs between $124 and $126. Traders who enter at current levels should limit downside by placing a stop order below the 200-day SMA.
Restaurant Brands International Inc. (QSR)
With an $18.69 billion market cap, Restaurant Brands International Inc. (QSR) operates and franchises quick-service restaurants through the Tim Hortons, Burger King, and Popeyes brand names. Tim Hortons' sluggish performance has weighed on the company's share price lately; however, the multi-year high same-store sales reported in Q3 at Burger King and Popeyes provide a bright spot. Wall Street anticipates the company to disclose Q4 EPS growth of 7% from the same period last year. As of Jan. 30, 2020, Restaurant Brands stock issues a 3.15% dividend yield and has added just 3.18% over the past year.
Sellers have controlled the price action since September, although their stronghold on the stock appears to be weakening with a bullish divergence forming between price and the moving average convergence divergence (MACD) indicator over the past three months. Furthermore, the stock finds critical support at $63 from a horizontal line connecting an array of prices on the one-year chart. Those who take a long position should think about cutting losses on a breakdown beneath the January low at $61.78 and setting a take-profit order near key overhead resistance at $68.