The recent update from Moderna (NASDAQ: MRNA) on their COVID vaccine has added fuel to the recovery rally and in particular, non-tech names that didn’t sparkle too bright this summer stand to do well. That means the likes of cruise ships, airlines, and hotels all stand poised to have a solid end to a year that for many looked like the last one they might be in business for. The same is true for restaurant stocks, with shares of the California based Cheesecake Factory (NASDAQ: CAKE) already seeing a strong bid.
When it rains it pours and so it’s been for their shares who have picked up several fresh upgrades in recent days. A 160% move from Q1’s low into November certainly had the stock on Wall Street’s radar, all the more so because it’s a classic restaurant name and so on the front line of any COVID slowdowns in the economy that filter through to equities. But with the stock now within a few percent of hitting pre-COVID levels, more and more sell-side names are rowing in behind it.
For investors still on the sidelines, there’s a compelling argument to consider the long side as we head into the final six weeks of the year.
Recovery Rally Potential
Even before Moderna’s news last week, the likes of Gordon Haskett were upgrading Cheesecake shares in light of their ongoing recovery driven potential. Their Q3 earnings at the end of October hadn’t been anything to write home about but had removed a decent amount of uncertainty that had been hanging over them.
As well as moving them to a Buy rating from Accumulate, Gordon Haskett noted how “the company has unlocked sustainable same store sales drivers well into 2021 and CAKE will emerge from the COVID landscape with a higher margin revenue mix and leaner cost structure. CAKE is positioned to see a multi-quarter run of upward EBITDA and EPS revisions as the Street will likely continue to view CAKE as a show-me story given the concept’s late to develop same-store sales recovery progress.”
A week later Deutsche Bank upgraded shares from Hold to Buy, feeling that they were still undervalued even after a solid run over the previous few weeks. In a note to clients they said “outside of near-term weather and COVID risks (which we acknowledge), and for CAKE specifically, we sense a reluctance to fully embrace a bull case here just given legacy issues and biases as it pertains to CAKE’s mall exposure. And while we definitely can understand this, as well as the viewpoint that there are other preferable names in Casual Dining, we are just articulating our opinion that on a stand-alone basis we think CAKE is undervalued.”
This was solid new sentiment for the bulls to be feeding from and then Moderna hit the headlines. That put hospitality stocks firmly back in favor and seems to have been the signal that many firms were waiting for. Since then both Argus and CFRA have moved shares from a Hold rating to Buy, both noting the huge potential for a fresh recovery rally as economies start planning to fully reopen with confidence. All the signs point to 2021 being the year that beaten down COVID stocks bounce back harder than ever as consumers play catch up on all the missed trips, vacations, and meals out with friends.
More recently, Cheesecake’s 50 day moving average crossed over its 200-day moving average back in October, a super bullish technical signal called the Golden Cross. Since then shares have traded above the 50-day line which is acting as solid support and provides a good entry point for anyone looking to dip the toe in now and to start positioning for next year.