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Why Burger King is eating McDonald’s lunch

Lawrence Lewitinn
Talking Numbers
Why Burger King is eating McDonald’s lunch

Jonathan Krinsky, Chief Technical Market Analyst at Miller Tabak says he found an interesting pair trade in the fast-food space.

Call it the Battle of the Burgers.

No, it’s not New York’s latest regulation of fast food. Instead, it’s the flaming fight between McDonald’s and its smaller rival, Burger King. And, it’s heating up.

Burger King today announced its new “French Fry Burger”, to be sold for $1 beginning in September. The burger will be a standard burger with a few French Fries sprinkled on top for those too busy to deal with their fries separately. But, if you’re ordering one of these, be sure to add a 5k run to your workouts because each French Fry Burger will have 360 calories and 19 grams of fat.

(Read more: Burger King to offer 'French Fry Burger' for $1)

The $1 price point takes aim at McDonald’s “Dollar Menu” which helped boost the Golden Arch’s total sales by 0.7%. The Dollar Menu has been around for a decade but McDonald’s has recently intensified its marketing.

This doesn’t mean McDonald’s has been stagnant in new products, though. The announcement of Burger King’s French Fry Burger comes a day after McDonald’s revealed plans to introduce its own new menu item: Mighty Wings. Offered for just a couple of month starting in late September, it will be priced as low as $2.99 for three wings.

(Read more: More chicken from McDonald's—Mighty Wings to come next month)

McDonald’s Company Burger King
1940 Founded 1953
$95 billion Market Cap $6.9 billion
$30.79 billion Revenues (last 12 months) $1.46 billion
$5.52 billion Net Income (last 12 months) $153.9 million
$95.31 Stock price (8/27/13) $19.96
7.75% Year-to-date return 20%
3.2% Forward dividend yield 1.2%

In this food fight, is there a way to profit from one – or both – of these stocks?

Jonathan Krinsky, Chief Technical Market Analyst at Miller Tabak says that the fight between investing in McDonald’s and Burger King is really a choice between large cap and small cap. And, in the macro setting, one set of stocks has done better than the other. That’s why Krinsky believes there’s a pair trade to be had in this burger battle: He says there’s one of these you should short and one you should go long.

To hear Krinsky discuss the fight between McDonald’s and Burger King and what pair trade he’s suggesting, watch the video above.


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