Eat Up! 3 Restaurant Stocks to Buy for 2016

It seems like Americans are acting a bit more like our former selves. With the economy finally grinding forward to a point where many Americans actually feel OK about their prospects, they’re opening their wallets and starting to spend.


The key is what they are starting to spend that money on. Hint: it’s not dropping huge cash at their local shopping mall. Instead, consumers are spending their hard-earned coin on dining, and that makes restaurant stocks a tasty buy going into the New Year.

Back in March of this year, consumer spending on bars and restaurant overtook grocery spending for the first time since 1992 at just over $50 billion dollars per month. That trend hasn’t reversed since then. Investment bank JP Morgan recently found — by combing through its credit and debit card data — that the average consumer is spending the savings from gasoline prices on eating out.

Add in powerful demographic trends — such as Millennials’ love affair with dining out — and you have a real case for the restaurant stocks as the stocks to buy in 2016. Here are three of the best.

Tasty Restaurant Stocks To Buy: Starbucks (SBUX)

Starbucks stock SBUX covered callsHonestly, who gives a flip about red cups? Restaurant stocks investors looking at Starbucks (SBUX) shouldn’t even give it another thought. SBUX is doing what it’s always been doing and that’s filling America’s caffeine addition one expensive cup of joe at a time.

Except, Starbucks isn’t just selling increasing amounts of coffee. For the latest quarter, SBUX managed to see total revenues rise 18% across its entire global portfolio of stores. Here in the U.S. same store sales jumped 8%. This is now the third quarter in a row of total revenues rising by double digits. Aside from increased beverage sales, Starbucks has seen great things from its new food and desert lines as well as rising foot traffic.

And tomorrow could be even brighter for SBUX.

That’s because the restaurant stock has managed to tap into technology in a big way. Starbucks has cultivated a “digital ecosystem” that links Starbucks Cards, apps, and various corporate partnerships with companies such as Apple (AAPL), Lyft, and the New York Times (NYT). And it seems to be driving sales. Starbucks CFO Scott Maw recently reported that 21% of the firm’s payments are made using mobile devices.

With SBUX trading at a forward P/E of 28, investors can snag one of the best stocks to buy without breaking the bank.

Tasty Restaurant Stocks To Buy: Bloomin’ Brands (BLMN)

Bloomin Brands NASDAQ:BLMNSlinging calorie-laden deep-fried onions and steaks is a great business to be in, and Bloomin’ Brands (BLMN) latest earnings help show that fact. The owner of Outback Steakhouse, Carrabba’s Italian Grill and the Bonefish Grill managed to post an analyst-beating profit for the past quarter.

And that beat could be just the start for BLMN.

The reason is that beef prices have cratered around 20% over the past few quarters. After prices surged the previous year, there’s now currently a glut of beef on the markets and that bodes well for steakhouse chains like BLMN’s outback. Analysts at Longbow Research estimate that the drop in beef prices could boost Bloomin’s earnings by as much as 15 cents per share in 2016 alone as the glut will take plenty of time to work its way through the system.

Add in the fact that comps at Bloomin’s core concepts have risen for the past five years, and you start to develop a picture for outperformance in the new year. More sales + lower costs = more profits. It’s as simple as that.

BLMN stock is also down around 34% over the last 52 weeks, which means investors can now buy those profits on the cheap and score a growing 1.4% dividend.

Tasty Restaurant Stocks To Buy #3: Potbelly Corporation

Potbelly stock NASDAQ:PBPBEveryone is always looking for the next Chipotle (CMG). As a result, many restaurant stock IPOs get out of hand. Now with a bunch of those IPOs falling back to earth, investors with cooler heads can snag some of the best stocks to buy for cheaper.

Case in point: Potbelly Corporation (PBPB).

PBPB operates a chain of gourmet sandwich shops and currently trades for less than its IPO price. That’s a good place to buy shares as 2016 should be a little rosier than this year.

To start with, both comparable-store sales and overall revenues at the fast-causal sandwich shop continue to rise. The latest quarter saw a 3.7% and 13.4%, respectively. This was now the fourth consecutive quarter of solid sales growth.

Secondly, the firm continues to capitalize on its franchise model and recently announced that it was going to expand in red-hot California. That model provides plenty of fees for potbelly and pushes much of the “costs” risk away from the firm. Higher food costs are what sank its earnings this past quarter for its company-owned restaurants.

PBPB isn’t cheap on a P/E basis even after the fall. But there is growth at the firm, and PBPB represents the kind of restaurant that is gaining plenty of transaction with consumers.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities. However, he has been known to throw down on a bloomin’ onion all by himself.  

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