3 Food Stocks to Eat Up and 3 to Return

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Lately, we have been receiving what seems like wave after wave of strong sales growth from the retail sector. At the beginning of this month, 12 retailers reported March same-store sales figures, and the results were quite positive; the average retailer posted 6.9% same-store sales growth while the consensus called for 5.3% growth.

And, just a few days ago, general March retail sales figures were released, and they reaffirmed that spring is shopping season for the U.S. Overall, March retail sales climbed 0.8% while economists expected it to rise just 0.3%. Even excluding auto sales, which had before been inflating the headline figure, sales still climbed 0.8%.

And, this sales growth applies to more than just your traditional retailers like department stores and specialty stores—consumers are also embracing eating out once again, and this is great news for three premium quick-service chains that I’d like to highlight today.

First up is Chipotle  (NYSE:CMG), which is quickly becoming America’s burrito chain of choice. And, with top-of-the-line ingredients like barbacue beef and fresh guacamole, it’s easy to see why.  Even in the face of rising food prices, Chipotle has continued to grab market share because consumers are willing to pay a premium for these healthier and heartier alternatives to the typical burger joint.

So, this company’s same-store sales have been growing by at least 10% for the past three quarters; last quarter, the company posted 24% year-over-year sales growth and earnings growth. And Chipotle is putting this cash to good use: The gourmet burrito guru is in the middle of an aggressive expansion campaign in which it plans to open as many as 165 new stores this year. This is an A-rated stock with tremendous growth prospects.

Another hot alternative to the usual fast food is Starbucks Corp.  (NASDAQ:SBUX), which is known for its specialty coffee concoctions and teas. The company is clearly the big kahuna when it comes to coffee. Travel to any major urban center in the U.S. and I can guarantee that you’ll only be a few blocks away from a Starbucks location.

But while Starbucks may have started in the U.S., the company has enjoyed robust sales in Asia in recent months that have driven its earnings higher. The company is also expanding its product offering through the recent acquisition of Evolution Fresh, a leader in the $3.4 billion cold-crafted juice industry. Despite its reputation for a $4 cup of coffee (and counting), consumers still go to Starbucks to get their caffeine fix, and they don’t show any signs of stopping. This is also an A-rated stock.

My last premium consumer stock may come as somewhat of a surprise to you—McDonald’s (NYSE:MCD). And though this fast food institution may not seem very sexy or trendy at first, this company has been working double-time to reinvent its brand. And, so far, it’s working like a charm.

In December, the company shelled out $2.9 billion to jump start the brand, with the money going towards updating franchise locations with free Wi-fi and flat-screen TVs as well as nicer furniture and better decorations. The company also announced a new CEO at the end of March, signaling the end of a seven-year dynasty under Jim Skinner. And, over the past few quarters, McDonald’s has been accelerating same-store sales at a rate almost unheard of for such an established chain. You really can’t go wrong with this A-rated stock because to top it all off, MCD pays a 2.9% dividend yield.

Of course, not all retailers and food chains are created equally—there are plenty of brands that are lagging behind. While I want you to focus on the three I listed above, I also want you to keep these next three companies in mind so that you can keep them out of your portfolio.

First up is Denny’s (NASDAQ:DENN) which is a family restaurant chain with over 1,500 restaurants in the U.S., most of which are located off the major interstates to draw in travelers. And, while the company has been able to accelerate operating margin growth and earnings growth, this stock has lackluster sales growth and a poor track record of earnings surprises. DENN is a C-rated stock.

I also want you to avoid Sonic (NASDAQ:SONC), which is a drive-in fast food chain that sells traditional quick fare like hot dogs, hamburgers and milkshakes. And while its happy-hour specials may tempt consumers, the company’s mediocre sales and earnings growth has kept buying pressure flat among investors. This is a D-rated stock.

Finally, I’m not impressed with Ruby Tuesday (NYSE:RT), which is an Americana casual dining chain that takes its name from The Rolling Stones’ hit. There are 800 Ruby Tuesday locations worldwide, and the company has been working to make its menu and atmosphere more upscale.

However, the company clearly hasn’t been successful lately because same-restaurant sales have been declining as has the company’s bottom line, which decreased 26% in the last quarter. The only bright spot for this company is its cash flow; all other fundamental metrics are D- or F-rated. So, RT earns and F and I strongly recommend that you stay away.

 


Article printed from InvestorPlace Media, https://investorplace.com/2012/04/3-food-stocks-to-visit-and-3-to-avoid-cmg-sbux-mcd-rt-son/.

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