With the S&P 500 at a 17-month high, investors are buying Burger King and some of the other few stocks that fell or underperformed the index the last 12 months in a bid they will catch-up and fuel the next leg of this bull market.
“Investors are rotating into the laggards in order to take profits in the big winners and keep their exposure to an industry,” said Steve Grasso, Stuart Frankel director of institutional sales on the NYSE floor.
But they are not just blindly buying all laggards. Burger King and many other of these companies are changing fundamental flaws in their business in order to finally ride the economic recovery their peers have already benefited from.
After dropping 15 percent in 2009, Burger King shares are up 4 percent this year as sales last quarter came in better than analysts expected and after the restaurant chain said it was adding Starbucks’ ‘Seattle’s Best’ brand coffee to its menu. Part of the bull market surge in competitor McDonald’s over the last 12 months was because of new menu items and a revamping of its coffee offerings. Now Burger King is catching on.
A widely followed chart pattern is confirming the notion that ’09 laggards like Burger King, along with CVS Caremark, are starting to come into their own right now. When a stock’s 50-day moving average crosses above its 200-day moving average (with both lines pointing upwards) it often signal a sustainable uptrend in the stock. It’s called a “Golden Cross” and both stocks have formed this patter this year.
This pattern occurred with CVS Caremark this week as the drug store chain climbed to a nearly 8 percent gain year-to-date after trailing the overall market in 2009. CVS Caremark has finally started to work out the kinks in the ‘Caremark’ pharmacy benefits manager business and is poised to benefit from any type of health reform that calls for greater use of generic drugs, investors say.
Refiners are also popping up as turnaround stories this year. Sunoco, whose chart also formed a “Golden Cross” this week, is up 14 percent this year after diving more than 30 percent in 2009.
“Margins are finally strengthening,” said Joe Terranova, chief market strategist at Virtus Investment Partners and a ‘Fast Money’ trader.
While oil prices have surged along with most other commodities and commodity stocks during this one-year bull market, the refiners have lagged because oil is their input cost. Oil prices moved higher first in anticipation of demand, but the actual demand for gasoline has only recently started to increase. Gasoline prices hit a 17-month high this week. The difference between raw material and the finished product are how refiners make money so it makes sense that Sunoco would be a late bull bloomer.
Searching the S&P 500 for the “Golden Cross” pattern, one will come across another refiner Valero and biotech Genzyme as well. After a down year, Genzyme could be coming into its own in anticipation of more active involvement by billionaire investor Carl Icahn this year.
“All of these stocks were really priced for Armageddon and underperformed in 2009, but are now coming into their own,” said Terranova.
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Trader disclosure: On March 12, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Grasso Owns (TSO), (AAPL), (ABK), (ASTM), (BA), (BAC), (BGP), (C), (COST), (CSCO), (PFE), (PRST), (V), (WMT), (FAZ); Edwards Owns (ARO); Edwards Owns (BAC) For Clients; Edwards Owns (GS) For Clients; Edwards Owns (JPM) For Clients; Edwards Owns (MS) For Clients; Edwards Owns (WFC) For Clients; Nations's Firm Trades And Has Positions In S&P Options; Gordon Is Short Australian Dollar; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm And Finerman Own (GOOG); Finerman's Firm And Finerman Own (JPM); Finerman's Firm Owns (SKS), (TJX); Finerman's Firm Is Short (USO); Finemran's Firm And Finerman Own (WFC) Preferred; Seymour Owns (AAPL), (BAC), (INTC); Strazzullo Is Short (SPY) As A Hedge; Strazzullo Owns (GLD)
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