4 Restaurant Stocks That Are Still Safe Buys

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The tumble in crude oil prices hasn’t been all bad for every sector. In fact, cheaper gasoline has allegedly been a positive for restaurant stocks like Texas Roadhouse Inc. (TXRH) and Brinker International Inc. (EAT).

Restaurant

EAT stock has gained nearly 25% since the end of July, when oil began to unravel, while TXRH stock is up 30% for the same timeframe, fueled by the assumption that low-priced gas means consumers have more money to spend on eating out.

Too much of anything, however, is still too much, and restaurant stocks as a group have simply rallied too much … particularly if crude oil prices start to recover soon. Even if oil doesn’t bounce, though, most restaurant names look overbought.

However, four restaurant stocks look like they have some upside left no matter where oil goes in the foreseeable future. Here’s a look at each.

Restaurant Stocks to Buy — The Cheesecake Factory Incorporated (CAKE)

cheesecake185Although shares of The Cheesecake Factory (CAKE) have rallied since oil peaked and began to tumble, CAKE stock hasn’t soared like Brinker International or Texas Roadhouse. Since the end of July, The Cheesecake Factory is only up 12%, and hasn’t made any meaningful progress since early November.

That kind of tepid progress obviously doesn’t make CAKE stock sound like a winner. So what does The Cheesecake Factory have working in its favor? As strange as it sounds, the best thing for CAKE stock right now is the fact that analysts hate it.

It’s admittedly counterintuitive, but when a community of analysts that collectively hates a stock and has issued a string of downgrades on it, that leaves the stock a great deal of room to be upgraded.

CAKE stock is in exactly that situation, with Zacks deeming it a “strong sell” as of November 17 against a backdrop of tepid (at best) opinions from other analysts. The Cheesecake Factory only rates, on average, between a “buy” and “hold” right now, which is alarming considering the buy-bias that still lingers in the market’s stock-rating ether.

With full-year guidance lowered following the company’s Q3 miss though, the stage is set for an earnings beat that prods a wave of upgrades for a company that’s still clearly growing sales and earnings.

Restaurant Stocks to Buy — Dunkin Brands Group Inc. (DNKN)

dunkin-brands-dnkn-stockOK, Dunkin Brands Group (DNKN) doesn’t go head-to-head with names like The Cheesecake Factory or  Brinker International, but it’s still a name that serves food and beverages to consumers, which means it should ebb and flow with most restaurant stocks. That is, less pain at the gas pump means more money in consumers’ pockets to spend on food.

Regardless of where it falls on the restaurant categorization scale, Dunkin Brands Group (DNKN) has noticeably lagged of late, up only 5% since late July. That leaves plenty of room for DNKN stock to catch up with its peers’ performance.

But aren’t consumers migrating away from fattening foods, putting Dunkin Brands Group on the hot seat?

If the nation’s accelerating health and fitness trend is truly (significantly) changing the way most of us eat, it hasn’t been a problem Dunkin Brands Group yet … and if it were going to be a problem, it would have been by now. We’ve seen higher year-over-year earnings in each of the past eight quarters for DNKN stock. Ditto for revenue. Healthy-minded or not, donuts have rarely been tough to sell to consumers.

Restaurant Stocks to Buy — Ruth’s Hospitality Group, Inc. (RUTH)

Ruth’s Hospitality Group Inc. (NASDAQ: RUTH)While a trailing P/E of 18.4 wouldn’t qualify most stocks as value plays, among restaurant stocks, that valuation makes Ruth’s Hospitality Group (RUTH) one of the cheapest restaurant stocks in the industry; the average competitor is currently valued at a trailing P/E of 24.3. A low valuation alone isn’t a reason to jump into a particular stock, though.

Though concerning on the surface, the fact that Ruth’s Hospitality Group has decided to sell its Mitchell’s restaurants means it’s going to be able to focus on growing its more familiar namesake restaurants that got the company to where it is today. Freed of the weight of Mitchell’s means RUTH stock can focus on what it does best and get back into the black.

All of a sudden, the fact that RUTH stock is in the red for the year looks more like an opportunity than a liability.

Restaurant Stocks to Buy — Wendys Co. (WEN)

WEN stockUp a mere 3% since the end of July, when crude oil prices began a major pullback, Wendys Co. (WEN) is one of the worst-performing restaurant stocks for that timeframe. It doesn’t deserve to be at the bottom of the barrel, however, and once investors realize most of the concerns regarding the company’s revitalization are overblown, WEN stock could and should perk up.

Yes last quarter’s earnings were shy of estimates, largely on higher food costs and shrinking revenue. Sales fell 20%, to $512 million, as part of the restructuring effort to reduce the number of company-owned units by converting them to franchises.

Some stores were also temporarily closed during the previous quarter for remodeling purposes. EBITDA was down 4.7% on a year-over-year basis. Earnings rolled in at 8 cents per share of WEN stock, versus expectations of 9 cents, though that was in line with Q3-2013’s adjusted bottom line of 8 cents per share.

So where’s any proof that Wendys Co. is actually making any progress with its turnaround effort? Operating profits were up 75% last quarter, growing from $26.8 million a year earlier to $46.9 million this time around … an improvement mostly driven by a reduction in general and administrative expenses.

Point being, the restructure and revamp is getting traction. Wendy’s is just going through some turbulence to get to bluer skies. Investors will see those skies eventually.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/restaurant-stocks-to-buy-cake/.

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