Select restaurant stocks are well-positioned for budget-conscious consumers with a refined palate.
Fast-food eateries, which rely on customers who want cheap food quickly, are having a tough time as consumers transition from cheap and fast to quality and calm. And restaurants are having more difficultly holding the line on costs. In April beef prices rose 8.4%. That makes it tough to pass on to customers.
That’s bad for the fast-food companies, but bodes well for restaurant stocks that are attached to companies that offer variations on a simpler, more family-oriented experience in casual dining.
And now that the weather is nice and school is ending people are hitting the road for long weekends and summer vacations. That will help some of these stores, since they’re strategically located to take advantage of travelers.
An improving economy will also be a wind at the back of these restaurant stocks. They’re the types of spots you go to on a Thursday night when no one wants to cook and there’s some extra cash laying around; or it’s a mid-morning or mid-afternoon splurge for something decadent for yourself. Regardless, these are the kinds of places that extra income gets funneled to first.
Here are seven restaurant stocks that are positioned to thrive this summer:
7 Restaurant Stocks to Buy: Starbucks (SBUX)
One of most famous poster children of discretionary spending is Starbucks (SBUX). Most people still see this as the trendy coffee spot, but over the past few years, SBUX has begun to up its food game.
It’s kind of reverse engineering a casual dining model from a cafe, whereas Panera (PNRA) built a casual dining restaurant with a cafe feel. What it does for SBUX is help boost revenue per customer and extend its revenue stream across the day and evening. The food is fast but quality and surprisingly reasonably priced.
You won’t get a half-pound burger for $5, but you can get grilled cheese, a panini, healthy bistro boxes with hummus and fruit, as well as wraps. All quick, all healthy and all fresh.
This isn’t going to be a gamechanger for SBUX, but it does give the stores more dimension than just a morning place to grab a coffee, or make an afternoon run for an iced macchiatto.
In the last six months the stock is up more than 25%, and there’s a lot of good news that could kick it higher.
7 Restaurant Stocks to Buy: Darden Restaurants (DRI)
Darden Restaurants (DRI) was famous for its Red Lobster and Olive Garden restaurants. But it sold Red Lobster and is now in the midst of updating Olive Garden.
The company also owns LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s Prime Seafood, Wildfish Seafood Grill and Yard House. Many of these are more upscale than their sister shop Olive Garden, and that seems to have been the recent trend in acquiring and growing these brands.
Restaurant stocks are great barometers for the economy. When times are good restaurant stocks soar; when times are bad, only the strong survive. And DRI is certainly one of the savviest restaurant stocks out there.
Last year was tough on DRI but it has turned things around after the sale of Red Lobster and it’s firing on all cylinders again. Net profit margin has more than doubled last year; return on assests has tripled.
The stock is up almost 30% in the past year.
As the economy regains momentum and more business start to spend DRI is in great shape to reap the benefits. Add to all that, DRI has a nice dividend around 3.4%.
7 Restaurant Stocks to Buy: Cracker Barrel (CBRL)
Cracker Barrel (CBRL) is one of the great American restaurant chains, especially for travelers. The first one was built in Lebanon, Tennessee, between Nashville and Knoxville by Dan Evins in the late 1960s. His idea was simple; give travelers good homestyle food in a homestyle setting once they get off the road for bit.
The first one opened in September 1969. By 1977 there were 13, from Tennessee to Georgia. Today there are more than 600 in 42 states.
Sales for restaurants open for at least a year (a key measure in this market) were up 5% in the most recent quarter. It also raised its dividend and declared a special $3 a share dividend on Aug. 5, for shareholders as of July 17.
CBRL has a nearly 3% dividend, which is certainly a nice bonus to its 46% stock price move in the past year.
The biggest surprise is, most Americans have yet to hit the highways, so its recent quarterly surprise suggests that coming quarters will also be strong as well.
7 Restaurant Stocks to Buy: Jack In The Box (BOX)
Jack In The Box (JACK) is a classic West Coast burger joint that over the decades established a national foothold. But it’s always been a quirky chain, without the spark and brimstone of McDonald’s (MCD) or Burger King (BKW). But it’s a major player; it just doesn’t act like it.
Let’s just say it’s the class clown of quick-service restaurants. It also runs Mexican eatery Qdoba, which is a new “fresh and fast” style of burritos, tacos and salads. Combined the operation has 2,888 stores across the country.
Recently Qdoba has been the engine of growth for the company. In the first quarter, same store sales were up 14% and the average check was up 9%.
JACK stock overall was up 4.4% in same store sales for the quarter. Some of the difference could be the fact that since JACK specializes in hamburgers and the cost of beef rose, its margins were a bit tighter than Qdoba, which has more non-beef options.
Qdoba is a great asset for JACK since it offsets the classic burger joint fare by adding products and a niche that can draw in an entirely different kind of customer — and is doing so.
7 Restaurant Stocks to Buy: Texas Roadhouse (TXRH)
Texas Roadhouse (TXRH) is a family-oriented oriented steakhouse; the Outback Steakhouse of the American west. This isn’t a bargain spot, it’s a mid-priced restaurant focused on family … and steak.
It’s working. It reported its most recent quarterly numbers in early May and TXRH is growing top line and bottom line. This is a classic restaurant stock in growth phase mode.
TXRH has 450 restaurants and expects to add 30 more by the end of 2015, including some of its new Bubba 33 sports bars in select markets.
Revenues were 16% for the quarter, operating income grew 21% and net income jumped 22%. Sales growth was led the industry — 8.9% for company restaurants and 8% for franchise restaurants.
The stock is up 38% in the past year, but the current numbers are very encouraging, considering it hit these numbers in bad weather with prices for many inputs spiking. The spring and summer look very promising indeed.
TXRH also has a nearly 2% dividend. Even as it places its money on growth, that’s a good shareholder-friendly sign.
7 Restaurant Stocks to Buy: Sonic (SONC)
Sonic (SONC) has been one of the winners from the devolution of McDonald’s. As MCD has lost market share, SONC has gained it. This hold true for a number of other burger joints, both large and small.
The thing is, it’s easier to increase market share if you’re SONC than it is if you’re say, Wendys (WEN).
And this has helped boost SONC’s numbers as well as its stock price. The stock is up almost 40% in the past year. But as the fast-food model changes, it’s companies like SONC that will be the winners.
The thing about SONC is, this isn’t some retro fad; this is the real deal. From the company’s website:
“Sonic revolutionized the ordering process in 1953 by using curbside speakers that allowed customers to place food orders without ever leaving their cars. This technology spawned the slogan “Service at the Speed of Sound,” which translated to one word: Sonic. Troy Smith Sr. aptly changed the name from Top Hat to Sonic Drive-In in 1959.”
There’s plenty of opportunity here for SONC and having such a long history in the business but having such a enduring and unique footprint should serve the companies 3,500 restaurants well in coming quarters.
7 Restaurant Stocks to Buy: Denny’s (DENN)
“To serve the best cup of coffee, make the best donuts, give the best service, offer the best value and stay open 24 hours a day.” That was the commitment of the owner of Harold Butler when he opened Danny’s Donuts in LA in 1953.
The name changed, but the commitment never has. Denny’s (DENN) now has 1,700 restaurants across the country.
And this classic all night diner with the bargain meals has made a shift to upgrade its restaurants as well as its menus for a generation of nighthawks. And it’s working. Same store sales were up 7.2% in the first quarter and the company is saying that more people are shifting away from the value meals and buying up on the menu.
That is indicative of two things: they customers like the food they’re getting and are willing to try more expensive items; and customers have more money to try new things beyond the reliable bargains.
Either way, it’s a bullish sign. The stock is up 62% in the past year and there’s plenty left where that came from.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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