Shares of Burger King Worldwide have been significantly outperforming those of their number-one competitor, McDonald’s, in recent months.
Jonathan Krinsky, chief market technician at MKM Partners, says now is time to “flip the burger trade” — i.e., sell Burger King and buy Mickey D’s.
Krinsky believes shares of the former are looking extended after a great run, such that “risk-reward no longer looks favourable on the long side.”
Shares of McDonald’s, on the other hand, may be breaking out of a downtrend.
“For holders of BKW, we recommend rotating out of BKW and into MCD,” says Krinsky.
“For those that can put on pair trades, we would short BKW while going long MCD, looking for the ratio to head back down towards the initial breakout level of 0.21. That offers an approximate 20-25% reward, while risking ~4% on a move to new highs.”