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VIDEORestaurant Sector Bites Off More Than It Can Chew?
Or are analysts just feasting on sour grapes?
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I have commented several times on the restaurant sector as a seemingly overbought group in recent weeks, given the employment situation. A couple of relatively upbeat reports from Brinker's (EAT) and Ruby Tuesday (RT), largely related to cost controls, have pushed the stocks higher than a helium balloon in Yao Ming's house.
Today, Raymond James, which downgraded the group last month from outperform to neutral (prematurely, it turned out), went one step further, slapping an underperform on a bunch of the names, including Cheesecake Factory (CAKE).
I always try to handicap the analysts, comparing their actions to how a trader might behave. One common trading mistake -- I've done it, and I know plenty of others have as well -- is to make money on a long, get out too soon, then short it - and get crushed, because the original idea proves even better than originally thought.
The shorting is a strange kind of emotional sour-grapes trade, trying to justify the premature exit. Because the truth is, very few of us are good enough to think something can go from a long to a short in such a tight frame.
Anyway, I happen to agree that the restaurant stocks are way ahead of themselves given the fundamentals. While this is a group I have successfully shorted in the past, I've been a bit run-over in the last couple of weeks. I'm sticking with it, however, and hoping that Raymond James' call is a disciplined one - not just a bitter reaction to leaving money on the table the first time.
Of course, as one boss of mine used to say, "Hope is not a trading strategy."
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