America’s fast-food restaurants may be entering a new phase, giving investors a decision over which stocks to buy in the space.
Challenged by the rise of fast-casual restaurants offering better food, better customer service and a better experience, the burger-based chains are showing a knack for reinvention.
Investors looking to enter the space may want to take a close look at the main players to see if they want to get involved now or wait for things to take more shape before choosing which stocks to buy.
Fast Food Stocks to Buy: McDonald’s Corporation (MCD)
Of course, McDonald’s (MCD) is the big story. After slogging about for several quarters and seeing same store sales declines that spooked management enough to fire the CEO, the venerable chain has embarked on a turnaround effort that appears to be taking hold and may make MCD one of the stocks to buy.
The biggest move from MCD has been to finally offer its breakfast menu all day instead of cutting people off from their Egg McMuffins at 10:30 a.m. That alone caused same store sales to spike in the most recent quarter.
Just today, I pulled up to a drive-thru and noticed several new menu items as well. It appears MCD is finally taking the Taco Bell approach and mixing-and-matching options. For example, you can now order a burger on various types of buns.
MCD stock trades at $119, or 22 times FY16 earnings. I feel, however, that is way too pricey for a company that has only just begun its turnaround and a broad market that is jittery. I would not consider it one of the stocks to buy in the sector.
Fast Food Stocks to Buy: Restaurant Brands International Inc (QSR)
Burger King had already completed an impressive turnaround and its stock had skyrocketed. Then it merged with Tim Horton’s to become Restaurant Brands International (QSR). In case you were wondering why the burger joints never got into hot dogs, wonder no longer. Burger King plans to do exactly that.
The King is going to offer grilled dogs, both classic and with chili cheese. QSR apparently wants to make it “The Whopper of Hot Dogs”. This is a highly competitive market, but Americans eat a whole lot of frankfurters.
I think the move is a good one. It shows Burger King, or QSR, is not resting on its laurels and plans to keep innovating. The purchase of Tim Horton’s, which is a coffee and donut operation, demonstrates this. QSR also beat earnings this quarter. Tim Horton same store comps increased a whopping 6.3% while Burger King’s rose 3.9%.
QSR stock is pricey at 27x earnings. However, its EPS growth rate is in the high teens. If QSR stock gets cut to size a bit, I’d consider this one of the fast food stocks to buy.
Fast Food Stocks to Buy: Jack In The Box Inc. (JACK)
I always thought Jack In The Box (JACK) did a pretty fine job keeping its menu fresh, with new and interesting ways of putting their burgers together. Nevertheless, JACK is overhauling its menu, and I suspect it will be met with satisfaction.
It introduced the “Double Jack” during the Super Bowl. Jack also introduced a buttered bun, and is actually removing seasoning for its burger patties. It is going to use real mayonnaise instead of an onion-mayo sauce and apparently is also “tweaking” its tomatoes and lettuce.
Primarily, however, JACK differs from its competitors in that it focuses on burgers. All those different burgers it introduces gives patrons a wide price point selection to choose from.
JACK missed estimates, however. As I write, the stock is down 20% in after hours to $62. That puts it at 17 times earnings on an expected growth rate of 14%.
I think if it falls another $10 or so, you may want to consider taking a bite and make this one of the fast food stocks to buy.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities.
