This Doubler Should Continue to Prove the Bears Wrong

There are two things that I really enjoy. The first one is a great hamburger, and the second is proving bearish stock market pundits wrong. These two things come together nicely in today’s trade: The Wendy’s Co (NASDAQ:WEN).

This burger chain has always attracted naysayers who talk about its struggles gaining market share. While it’s true that Wendy’s takes a clear backseat to McDonald’s Corporation (NYSE:MCD) and Burger King Worldwide Inc (NYSE:BKW), I believe it leads in creative marketing and food quality.

From personal experience, I can unequivocally say the taste of its food has improved. Particularly, I think its new pretzel bun will draw in customers. Put generic tasting meat on an average bun and you have a generic sandwich. Put the same meat on a great tasting pretzel bun and it creates a great tasting sandwich. I think this simple switch will go a long way in the long term-viability of the chain.

The Wendy's Co (NASDAQ:WEN)In 2007, WEN traded around $20 a share. It plunged to a low under $3 in November 2008. Prices then languished below $6, bottoming around $4 in October 2012. Since that time, shares exploded higher and have just hit resistance in the $9 range. I am certain that many short-selling bears got burned during the year-long 100% upside move.

I strongly believe there is additional upside for bullish investors at current levels.

In the second quarter of 2013, Wendy’s posted an astounding 60% increase in adjusted earnings per share (EPS) and announced a 25% increase in its quarterly dividend. These are strong advances, but it’s the future plans that have me loving this stock.

The company said it plans on selling around 425 company-owned locations to franchisees. This move will reduce direct ownership from 22% to about 15%. This sale is part of companywide initiative to improve the brand. Other steps include developing new restaurants, reimaging, logo updating, and innovative new products and packaging. These changes are expected to improve financial performance by optimizing the system, increasing margins and reducing expenses.

Dividend increases and share buybacks are also part of the strategy. CFO Steve Hare stated, “The dividend increase and share repurchases are important elements of our financial management strategy. We are committed to continuing to deploy capital to drive the organic growth of our restaurant business, in addition to returning cash to shareholders.”

I think WEN should continue to prove the bears wrongs well into 2014. These powerful changes combined with the share price momentum could easily push WEN above $13 in the next 90 days. Resistance exists at $9, and buying on a breakout close of this level makes sense.

Recommended trade Setup:

— Buy WEN on a daily close above $9
— Set stop-loss at $7.45
— Set initial price target at $13 for a potential 44% gain in three months

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