This column was originally published on RealMoney on May 17 at 12 p.m. EDT. It's being republished as a bonus for readers. For more information about subscribing to RealMoney, please click here.

Restaurant stocks are acting well this spring, with the most popular chains pushing to all-time highs. This resilient price action predicts that many of these issues will move even higher in the weeks ahead. Let's see which eateries deserve a proud home in your trading account or investment portfolio.

Several factors are driving the raging bull market in fast-food stocks. Many chains now enjoy significant growth opportunities in previously restricted parts of the world, like China. The sector also offers asylum against a slowing economy because fast-food junkies consume their full ration of burgers and fries in all economic conditions.

A well-publicized push to force big restaurants into private-equity sales is also raising speculation throughout the sector.


(WEN) - Get Wendy's Company Report






( IHP) have all made headlines in recent months, as activist groups press hard for big deals. To date, there have been few bona fide sales, despite an active rumor mill.

Of course, it hasn't all been upside for the restaurant group.

Yum! Brands

(YUM) - Get Yum! Brands, Inc. (YUM) Report

made unwelcome headlines this year following an

E. coli

breakout in California and a rat infestation in New York City. The incidents highlight the things that can go wrong in this industry when quality-control issues are put on the back burner.

However, a more serious industry threat -- activist groups' efforts to penalize these companies and change people's eating habits -- has not taken hold. While fast food can be hazardous to your health, especially in large quantities, consumers have decided this is comfort food we need in our everyday lives.


(MCD) - Get McDonald's Corporation (MCD) Report

is benefiting from its inclusion in the

Dow Industrials

, which is outperforming all other indices right now. The stock rallied through its 1999 high last week and is now trading above 50 for the first time. The company is on a tear despite relatively unimpressive sales gains and limited growth opportunities.

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Price has zoomed above eight-year resistance too quickly. When a stock hits an old barrier, like a multiyear high, it needs to sit back and build a platform that will support a sustained rally. Mickey D's spent just three weeks setting up the current breakout. So, I suspect the uptrend will soon stall out and give way to several months of sideways action.

Jack in the Box

( JBX) has been in a strong uptrend since late 2005. It hit a rally high at 72.14 in February and pulled back with the broad market. It returned to that level last week and broke out on heavy volume. The stock added another two points after reporting bullish earnings on Wednesday.

This stock should be trading in the mid-80s later this year, but interested readers shouldn't chase the rally here. Instead, wait for the post-earnings dust to settle. There should be several buying opportunities between 73 and 75 in the next few weeks. In the longer term, this restaurant powerhouse could be trading near a hundred bucks.

Yum! Brands

(YUM) - Get Yum! Brands, Inc. (YUM) Report

trades more like a tech stock than a restaurant chain. The stock rallied to an all-time high at 63.68 last November after rising over 40% in just three months. It then pulled back until February, when it bounced sharply at long-term support. It's been all good news for company shareholders since then.

The upturn reached the November high in late April, where the stock paused for just four days before breaking out on high volume. Price has been moving sideways-to-lower since that event, absorbing the considerable gains it posted that day. This is bullish behavior, setting the stage for a follow-through rally that should reach 70 within weeks.

Darden Restaurants

(DRI) - Get Darden Restaurants, Inc. Report

runs a number of popular chains, including Red Lobster and Olive Garden. The stock hit a rally high at 44.43 last October and pulled back, testing its 200-day moving average three times before heading back to the high earlier this month. Price then gapped above resistance last week on strong volume.

The one-day rally stalled and price has been pulling back into the breakout gap. Look for buyers to reload their positions between 43.50 and 43.75. That surge could be the start of a strong bounce that takes out the old high and carries the stock toward 50 in the weeks ahead.



rallied through 24 in early 2005 and sold off for the rest of that year. It returned to this level in April and November of 2006, but was turned away on each attempt to rally above resistance. The stock is now approaching that stubborn barrier for the fourth time. Will it succeed on this attempt to break out?

The long-term chart shows a bullish ascending triangle pattern developing over the last 2½ years. This should eventually support a breakout and rally that lifts the stock through 30. But close-up accumulation is still relatively weak on this issue, suggesting at least one more pullback before that move gets under way.

At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

Alan Farley is a professional trader and author of

The Master Swing Trader

. Farley also runs a Web site called, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;

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