A basket of restaurant stocks got a shot in the arm Monday after a private investor group bought the Arby's chain from the chronically underperforming Wendy's/Arby's Group (WEN - Get Report). This long-anticipated transaction should encourage a wave of speculation in the weaker industry players, although the group as a whole will remain vulnerable to a slowing economic environment.That's especially true at the top end of the capitalization spectrum, where currency fluctuations and rising food costs have buffeted fast food giants McDonald's ( MCD - Get Report) and Yum! Brands ( YUM - Get Report). As I noted in a
Wendy's/Arby's disclosed in January that it was trying to sell Arby's, triggering a strong volume surge that has, so far at least, failed to translate into higher prices. The stock rallied on the acquisition news but ran immediately into a buzzsaw of selling pressure, dropping the price back toward the unchanged level by Monday's closing bell. RUTH - Get Report) was the biggest winner in Monday's impulse buying, breaking out above a six-month basing pattern at $5.50 and hitting a 52-week high. The first rally target lies at $6.60, where the stock topped out in April 2010. There should be at least one buyable dip before the uptrend extends to the upside, with a decline into the $5.20 to $5.40 zone offering a low-risk buying opportunity. TIF - Get Report) one of the strongest performing retail stocks of 2011.
Sonic Corp. ( SONC is also finding buyers, bouncing strongly after a two-week downdraft. This company treads the same demographic waters as Wendy's/Arby's, with high market saturation and slowing growth. It's been a poor performer in the last few years, dropping into an ascending triangle pattern that's been in place since September 2008. JACK - Get Report). Like Sonic, this stock has dropped into a major holding pattern since the bear market ended. Unlike its rival, it's had a tough time finding steady buying interest, despite one of the funniest marketing campaigns in the restaurant business.