With a booming economy, one of the natural places for people seeking growth opportunities are food and restaurant stocks. Under belt-tightening conditions, you’ll typically see more demand for discount-centric businesses. But as it stands, the headline numbers are positive — bolstering the case for the wider restaurant industry.
That said, I’d be remiss not to mention the inherent risks of the coronavirus from China. At the latest count — and this will surely change for the worse – over 60,000 cases are confirmed, with at least 1,300 dead. Moreover, business consultancy firm Bain & Co. estimates that China’s GDP for this year could be negatively impacted to the tune of $43 billion to $72 billion. Obviously, that’s not the greatest news for restaurant stocks, especially those with exposure to China.
On the flipside, food and restaurant stocks benefit from demographic realities. According to the Pew Research Center, millennials represent the largest generation in the workforce. While they may not be the richest generation — that still belongs to the baby boomers — they have cash flow due to their employment status.
As studies have shown, just their presence alone is creating changes in the food-service industry. Further, experts in the space predict that millennials will be the biggest food and beverage spenders within a decade. So, while the coronavirus presents an immediate threat, restaurant stocks are riding a much longer-term bullish wave.
Plus, fears about the coronavirus may offer discounted opportunities in various food stocks. At some point, health officials will get a hold of the crisis. And when they do, the narrative will presumably shift positively.
So, with that in mind, here are nine food and restaurant stocks to buy that investors should dine in on.
Food and Restaurant Stocks to Buy: Domino’s Pizza (DPZ)
At first glance, Domino’s Pizza (NYSE:DPZ) doesn’t appear to be a viable name among restaurant stocks to buy.
After all, studies suggest that millennials prefer fresh and healthy foods. And that trend may “exacerbate” for fast-food eateries, as older millennials become parents. Still, I think you should consider DPZ stock for one very important reason: Americans love pizza!
In 2012, pizza restaurant sales totaled $36.8 billion. By 2019, this figure increased to $46.3 billion. With few exceptions, sales have steadily risen every year. More importantly for DPZ stock, Domino’s has a massive footprint in the U.S. In 2018, the company rang up $6.59 billion domestically, beating out big names like Yum! Brands’ (NYSE:YUM) Pizza Hut and Papa John’s (NASDAQ:PZZA).
McDonald’s (NYSE:MCD) is in a similar boat with Domino’s in that MCD stock doesn’t immediately appear a strong candidate for a restaurant stocks to buy.
Given millennial consumers’ penchant for healthy foods, the Golden Arches is basically the Donald Trump of fast food. In other words, it’s the opposite of what the modern consumer wants.
However, fast-food consumption has accelerated over the years, presumably because economic and labor force conditions warrant such expenditures. Therefore, there are more people that eat fast food at least one to three times per week versus those who eat less than once per week.
Combined with McDonald’s efforts into making their stores more technology friendly, MCD stock may offer healthy, longer-term performance.
Darden Restaurants (DRI)
Many names have stumbled due to the coronavirus causing a direct impact to their businesses. However, Darden Restaurants (NYSE:DRI) is not one of them. In fact, DRI stock has performed very well since the beginning of January — up 12% year-to-date. Part of the reason is that Darden isn’t as levered to the international markets as other competing restaurant stocks.
However, another key reason for bullishness in DRI stock is that Americans today prefer to eat out. Studies show that consumers would rather eat out consistently than to only visit a restaurant once a month, which is a minority segment.
This makes Darden’s decision to expand their physical footprint rather prescient. And, it makes DRI another one of the great restaurant stocks to buy.
Cheesecake Factory (CAKE)
If there’s any name that could benefit from sustained economic momentum, it’s Cheesecake Factory (NASDAQ:CAKE).
Since early 2017, CAKE stock has generally traded in a bearish trend channel. However, with more people willing to spend their discretionary income on restaurants, Cheesecake Factory may finally get back on its feet and move forward.
Additionally, another factor that distinguishes CAKE stock from other restaurant stocks is the underlying company’s footprint. It’s not so much how many but where they are located. Typically, Cheesecake Factory restaurants are located in happening retail outlets in major metropolitan areas.
So, don’t be surprised to see CAKE trek higher — especially if this economic growth holds up.
Despite present enthusiasm for dining out, preparing dinner and other meals at home is a financial necessity for most. Even if you can afford to eat out every day, the margins that you bleed for visiting your favorite restaurants does not make sense.
Therefore, Kroger (NYSE:KR) and KR stock benefits from a longer-term secular bull thesis.
However, Amazon (NASDAQ:AMZN) you say? The tech company has been involved with order groceries online, and curb-side pickups. But, while the disruption of e-commerce trends in the grocery space is a concern, it might take years for full integration. According to a 2018 Gallup poll, customers prefer buying their groceries themselves. This makes sense because you’re putting the product in your body, which augurs well for KR stock.
Therefore, food stocks like Kroger are still relevant.
Uber Technologies (UBER)
When people think about food stocks, Uber Technologies (NYSE:UBER) may not immediately come to mind.
However, the ride-sharing giant and overall tech disruptor is more than just a revolutionary platform to bring folks from point A to point B. Instead, UBER stock represents a lifestyle investment, with significant implications for the food industry.
As you know, few other names like UBER stock is emblematic of the gig economy. And for those who ply their trade in this burgeoning sector, time is money. Honestly, it makes sense that if you’re going to eat out anyways, you might as well pay a premium to save the hassle.
I’ve personally tried Uber Eats, the company’s food delivery service and the results are very impressive.
Kura Sushi (KRUS)
Due to extreme panic of the coronavirus epidemic, many Chinese restaurants in the U.S. and globally have suffered sharp sales declines. Now, I viewed this as an opportunity to visit my favorite Japanese restaurants. But let’s face it: to most Americans, it’s all the same stuff.
Boy, was I wrong! Japanese establishments in my city are packed to the hilt, just like they’ve always been. I believe this is a huge opportunity for Kura Sushi (NASDAQ:KRUS). As one of the most popular culinary options in America, KRUS stock has natural upside.
Additionally, Kura came to fame because of its conveyer-belt delivery system. Just punch in what you want on the ordering system, and you have your menu item whisked to you. It’s a fun and technologically-advanced way of enjoying sushi — which is a net positive for KRUS stock.
Noodles & Co (NDLS)
In the markets, you’ll often hear the phrase, don’t fight the tape. Even if a phenomenon doesn’t make sense, if it’s part of a larger trend, don’t bet against it. Well, the investment thesis for Noodles & Co (NASDAQ:NDLS) fortunately makes a lot of sense. Americans love their pasta and noodles, which bodes well for NDLS stock.
Moreover, Noodles & Co should appeal to a broad consumer base. Go into one of their restaurants and you’ll find a plethora of options, ranging from the Italian-based classics to Asian noodles to of course the American favorite: mac and cheese.
This culinary diversity truly fits well with the equally diverse millennial demographic, which should serve NDLS stock well down the road.
Shake Shack (SHAK)
Perhaps no other rivalry epitomized the bitter feud between east and west coasts than 2Pac and the Notorious B.I.G. But in the culinary world, we have two burger joints going head-to-head: California’s favorite In-N-Out Burger and New York’s Shake Shack (NYSE:SHAK).
Unlike musical preferences, this fight has a clear winner: SHAK stock.
For one thing, Shake Shack is a publicly traded company whereas In-N-Out will never go that route. Second, Shake Shack resonates with millennial diners seeking an experience. Unlike the simple, perhaps spartan décor of In-N-Out, Shake Shack’s interiors are far classier and modern.
Apparently, Shake Shack’s burgers are amazing and worth their premium price tags. And that’s another win for SHAK stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.