Although the broad markets have stormed back since the recently christened “Black Monday” session of August 24, it has been nothing short of a wild, stomach-churning ride.
Even with revamped enthusiasm, the Dow Jones Industrial Average is still stuck at its 50-day moving average, with little to suggest that the bulls will convincingly push past resistance.
After all, the latest jobs report released by the U.S. Department of Labor was absolutely dismal, and negative revisions for the months of July and August confirm that certain segments of the economy are weaker than initially advertised.
Contrary to the pensiveness seen in the broader markets, publicly traded pizza companies have mostly bucked the trend, making them great stocks to buy.
Although the industry has seen its fair share of victims — California Pizza Kitchen, anyone? — the major players that remain have posted solid numbers, with two of the pure pizza companies averaging 19% year-to-date. This figure is in stark contrast to the roughly 6% YTD loss in the Dow Jones.
The primary reason for the lift in pizza stocks is fairly straightforward. Fast food is a form of escapism, and recession or no recession, people will find ways to indulge. If such indulgences can be met at a reasonably low price, it’s a win-win for all involved. But pizza stocks also tend to be well-managed and display several fundamental strengths, thus supporting the position that these companies are excellent stocks to buy during uncertain market dynamics.
Let’s take a look at the top three pizza stocks that can deliver more than just dinner.
Pizza Stocks to Buy: Papa John’s (PZZA)
Long considered one of the leaders in the pizza delivery industry, Papa John’s (PZZA) has a rabid fan base — enough to attract an investment made by future Hall of Fame quarterback Peyton Manning. Papa John’s ability to keep giving its customers what they want is a key ingredient to their success thus far, making PZZA stock one of the best stocks to buy within the industry.
The financial performance of PZZA stock says it all. Between fiscal years 2012 to 2014, total revenue for Papa John’s has grown an average of 9%. Even more impressive, net income has also increased by the same percentage magnitude.
At its current quarterly sales rate, revenue for FY2015 should be in the neighborhood of $1.65 billion — good for a 3% increase against FY2014’s tally. While this would not be the most impressive result for PZZA stock, comparatively, it is a lot better than many companies are managing this year.
What cannot be denied is the massive returns for PZZA stock holders. On a YTD-basis, Papa John’s is up almost 25% — hugely better than the 3% drop seen in the benchmark S&P 500 index. Although PZZA stock gave up some momentum during the summer months, its present position in the markets is supported by its 200-day moving average. This position suggests that the bulls still consider PZZA as one of their go-to stocks to buy.
It has been a tough year for the equity markets, but the potent mixture of branding and management has given PZZA stock investors some reason for cheer.
Pizza Stocks to Buy: Domino’s (DPZ)
The end product tastes a lot better, and for millions of pizza-craving Americans, that’s the only thing that matters. But for investors of Domino’s (DPZ), the story is all about the turnaround.
With the help of PepsiCo (PEP) marketing expert, Russell Weiner, Domino’s Pizza a series of off-the-cuff advertisements that coincided with an improved and diversified recipe.
The result? Happy customers who earnestly took to heart Domino’s rebranded message. Judging by a taste test conducted by culinary website Epicurious.com, the effort isn’t just mere lip service.
More importantly, the results are clearly evident in the markets. Since January of 2009 until now, DPZ stock has returned almost 2,300% — demolishing most competitors. Even with the tumultuous trading we’ve seen in the major indices over the past two months, DPZ stock continues to charge ahead, moving up nearly 15% YTD.
Although DPZ stock did see some pullback in late August, similar to Papa John’s, Domino’s Pizza shares are supported by its longer-term 200 DMA.
But the rationale for DPZ stock isn’t just limited to buying its technical strength. Top-line annual sales growth averages 15% between FY2012 and FY2014 — identical to Papa John’s growth rate. What sets DPZ stock apart, though, is earnings. Net income growth averaged nearly 20% during the aforementioned time frame, which means that Domino’s managed costs more effectively than its rival.
In a world where investors have grown cynical with the Wall Street hype machine, Domino’s Pizza has truly delivered on their promises, which should bode very well for DPZ stock.
Pizza Stocks to Buy: Pizza Hut — Yum Brands (YUM)
Though not a direct pizza stock opportunity, Yum Brands (YUM) offers an eclectic mix of popular fast food brands, including Pizza Hut, which came in second place for the previously mentioned taste test.
However, diversity can have its drawbacks, particularly when a significant portion of one’s business is leveraged towards the Chinese markets.
Earnings results for YUM stock were disappointing to say the least, with management admitting that its net income target for this fiscal year may be wildly out of reach.
The primary culprit is its China sales division, which has been hampered by a weakening economy and a meat safety scandal that has put a black eye on Yum Brands. Investors quickly reacted to the news, dropping YUM stock 19% the next day, erasing its gains for the year (and then some).
Despite its troubles, it would take a brave soul to dismiss YUM stock outright. The company has gone through lean times before, most recently during last year when YUM stock ended in the red. Furthermore, between mid-July to mid-October of 2014, YUM stock lost more than 18% of market value, yet shares were able to bounce back over the next eight months, moving up sharply by 40%.
Fundamentally, Yum Brands is buoyed by a strong balance sheet, which enables the company to not only weather financial storms, but to invest in the future as they see fit.
YUM stock is a classic example of a good investment priced at a discount, which makes it one of the better pizza (and fast food) stocks to buy.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.