Burger King Or McDonald’s? Investment Expert Says …

Burger King or McDonald’s? McDonald’s or Burger King? Tough choice! No we’re not talking about deciding between a Big Mac and a Whopper, we’re talking about which burger giant is your best investment!

According to the Wall street Journal, 7 months ago, in August, 2013, a technical strategist with MKM partners, Jonathan Krinsky, advised investors to buy Burger King Worldwide and short McDonalds Corp., citing some technical and fundamental factors that made this the correct stock advice.

Turns out it was the correct stock advice.

Burger King has been outperforming McDonald’s for several months – actually since Krinsky made his assertion – and now Mr. Krinsky is saying it’s time to flip the burger chains back. That is, stock up on McDonald’s shares and sell Burger King.

While Burger King shares have been highly successful recently, particularly compared with McDonald’s who is Burger King’s chief rival, Mr. Krinsky believes those Burger King shares are due to slow down. In his words, the “risk-reward no longer looks favorable on the long side,” and that “now is the time to “flip the burger trade.”

Burger King shares have enjoyed tremendous growth – 36% since the end of August (right on, Mr. Krinsky!) – and have tripled the S&P 500?s 11% gain. McDonald’s on the other hand, has struggled like one with a broken McRib, dragging to a 2.4% gain. In fact, just in the last week, Ronald McDonald could hardly have been smiling or clicking the heels of his big red shoes, as McDonald’s shares were trading below the price they were at when Mr. Krinsky revealed his Burger King hunch back in August.

But did Mr. Krinsky gloat and say “I told you so?” Nope. Instead he humbly forecast what he believes will unfold next:

“We think that trade has fully played out, and would now be looking to flip it,” said Krinsky. Again, in so many words: time to short Burger King and buy McDonald’s.

With the excellent performance of the last several months, Burger King has definitely earned the huge (though some think creepy) smile that their mascot always wears, with shares trading around record highs. But Mr. Krinsky believes, by his indicators, that the stock has “reached overbought conditions”. Judging trends and trades he sees “significantly more downside risk here than upside reward.”

Burger King says its fourth-quarter earnings have risen 37% from a year ago, crediting “refranchizing efforts” that resulted in lowered costs and improved sales.

Meanwhile, McDonald’s stock seems to be making McNuggets and recovering from it’s year long downward trend, according to Krinsky. Shares have “favorable but not overbought momentum,” he says. He also thinks the stock could climb as high as $104, which would be 6% higher than current levels – A Happy Meal, Indeed!

Krinsky’s concluding say on the matter:

“Finally, consider the ratio of BKW vs. MCD. As you can see below, BKW has been massively out-performing MCD over the last 18 months, with an especially steep rate of ascent in the last four months. Yet it is just now starting to break that very steep initial uptrend line, as momentum breaks down from overbought.

“For holders of BKW, we recommend rotating out of BKW, and into MCD. 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. Should the ratio breakout above prior highs (0.29) we would have to re-evaluate that thesis.”

So Big Mac or Whopper? With Mr. Krinsky’s solid track record, it looks like Ronald McDonald will make a solid run and potentially ketchup with the Burger King.

Photos via Bing. Chart, Bloomberg and MKM Partners