Fast-food stocks are on fire.
Shares of Chipotle, McDonald's and Starbucks have boasted double-digit gains this year and are all trading near 52-week highs. However, as Chipotle gets set to report its latest quarterly earnings Tuesday after the bell, one technician says the stock is gearing up for a big make-or-break moment.
"A chart of Chipotle has had a major inflection point, this stock is very close to breaking out above the prior highs that we've seen before," said Craig Johnson, senior technical analyst at Piper Jaffray. The stock is trading right near its all-time highs at around $732.41, levels investors haven't seen since 2015 before a series of foodborne illnesses brought shares down as low as $250.
While Johnson said the stock looks like a buy if it can rally above a key $750 level on its results, he warns that after a nearly 70% rally this year "there's a possibility Chipotle could fail on a potential breakout."
Instead, Johnson suggests investors aiming to take advantage of the fast-food run to look to follow the rally in McDonald's. Shares of the golden arches are up 21% this year and trading at all-time highs.
"McDonald's has been in a very well defined uptrend for quite some time here," he said Tuesday on CNBC's "Trading Nation." "I'm going to take the safety trade of being inside that nice channel we've been in for a number of years and wait for that move back to the upside."
While Mark Tepper, CEO of Strategic Wealth Partners, agrees McDonald's is a good defensive play, he believes Starbucks is poised to see the most growth ahead.
"Starbucks is our favorite if the economy continues to stand, which is what we believe is going to happen," he said. Tepper also notes that Starbuck's expansion into the middle-class Chinese market and reoccurring revenue from brand-loyal consumers should help continue to help grow earnings for the stock.
"The issue is those revenues aren't recessionary proof because when the economy slows that $5 coffee drink is one of the first things to go," Tepper warned.
Shares of Chipotle, McDonald's and Starbucks were all lower midmorning Tuesday.
