Schaeffer's 43rd Anniversary Stock Picks in 2024

2 Top Restaurant Picks Flashing Bull Signals

Short-term IVS are at historically low levels on the two stocks

Jun 12, 2019 at 3:19 PM
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Evercore ISI chimed in on restaurant stocks today, saying the lack of an "existential Amazon threat and death of impulse channel risk" could create cash-flow stability, and tapped McDonald's Corp (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM) as two of its top picks. The brokerage firm also started coverage on the two stocks with an "outperform" rating. In reaction, MCD and YUM shares are higher today, and one signal is saying there's more room to run.

McDonald's Stock Closes in on Record High

At last check, McDonald's stock is up 0.8% at $205.02, fresh off their June 7 record high of $206.39. Year-to-date MCD shares are up 15.4%, with recent pullbacks contained by their 20-day moving average.

mcd daily chart june 12

Meanwhile, implied volatilies on the equity are at historically low levels, per MCD's Schaeffer's Volatility Index (SVI) of 15%, which registers in the 15th percentile of its annual range. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the five other times in the past five years the equity has been trading near a 52-week high while its SVI ranked in the 20th annual percentile or lower, resulting in an average one-month gain of 1.7%.

A continued round of short covering could create bigger tailwinds for MCD. Short interest edged down in the most recent reporting period, yet the 6.75 million McDonald's shares sold short represent 2.4 times the average daily pace of trading.

Yum! Brands Stock Overdue for Upgrades

Yum! Brands stock is up 1.3% at $109.01, dangerously close to taking out its June 7 record high of $109.63. This recent leg higher came following a sharp bounce off its 80-day moving average in late May, with YUM shares now up 18.6% year-to-date.

yum daily chart june 12

At the same time, the equity's SVI of 17.9% registers in the 7th percentile of its 12-month range. Per White, this combination of high stock price and low SVI has been seen seven other times in the last five years, and the stock was up 3.3%, on average, one month out.

A round of bull notes could draw more buyers to YUM's table. Currently, 10 of 16 brokerages maintain a lukewarm "hold" rating on the equity, while the average 12-month price target of $105.61 is a discount to Yum! Brands stock's present perch.


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