2014 has been a solid year for the S&P 500, with the benchmark index boasting 10.4% returns year-to-date. Considering the recent slump in gold prices and the dramatic decline in the price of oil, it might not surprise you to hear that the basic materials and oil and gas sectors have both underperformed the market in the last year.
But is there any reason for Wall Street to punish restaurant stocks? I don’t think so.
Simply put, with unemployment recently reaching a 6-year low and crude oil prices near 52-week lows of their own, restaurants — and fast-casual restaurants in particular — are looking like the stocks to buy and appear primed for a year-end rally.
Chipotle Mexican Grill, Inc. (CMG), Noodles & Co (NDLS), and Buffalo Wild Wings (BWLD) in particular look like strong stocks to buy for seasonally minded investors. Here’s why.
Chipotle (CMG)
CMG stock has been one of the great growth stocks of the last decade, with shares up nearly 30 times above their IPO of $22 2006. Even in 2014 — a year in which both the quick service restaurant industry and the commercial food services industry have lagged the broader market — CMG stock is up 24%.
With a market cap of $20 billion, Chipotle’s days of anonymity are long behind it, but its growth potential isn’t. Same-store sales grew at nearly a 20% clip in the most recent quarter as increased popularity despite higher menu prices sent comps through the roof. Chipotle’s ruthless efficiency continues to impress Wall Street, as operating margins rose by 200 basis points despite higher commodity prices.
Chipotle’s best-in-class business still runs like a well-oiled machine and CMG stock remains a strong stock to buy going into the holidays.
Noodles & Co (NDLS)
NDLS stock, on the other hand, hasn’t had such a great year. Shares have lost more than 33% in 2014 as Wall Street cooled off on the stock after its red-hot 2013 IPO when NDLS stock price more than doubled in its first day. But Noodles & Co isn’t best-in-class like CMG — same-store sales actually fell earlier this year, spooking investors. But with the company reporting a third-quarter revenue beat earlier this month that sent NDLS stock up 10% in the aftermath, the chain may be turning things around.
Plus, the consumer discretionary area, and the restaurant industry in particular, are poised to benefit as more people get back to work and gas prices remain low. NDLS stock is a buy as we head into December.
Buffalo Wild Wings (BWLD)
Like CMG, Buffalo Wild Wings stock also has an impressive record of growth and outperformance that investors can take comfort in. While the cliche “past performance is no guarantee of future results” is true, BWLD stock’s 800% gains in the last decade show that, at a minimum, this is a sustainable and popular business.
The average price per gallon of gas in the U.S. is about $2.91, more than 8% lower than it was just a month ago. With retail sales growing faster than expected in October and last month’s 5.8% unemployment rate clocking in at the lowest levels since July 2008, Americans should have more money in their pockets for an occasional Buffalo Wild Wings outing.
Plus, it’s still football season, and BWLD stockholders know how important sports fans are to the company’s success. BWLD, CMG, and NDLS each look like solid stocks to buy going into the holiday season.
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As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.
