The novel coronavirus pandemic has walloped nearly every sector. However, there are some industries like food and beverage that have fared better than others, and that’s not surprising. But food stocks often don’t get the love that they deserve. This is despite these food companies being hot stocks to buy in almost every situation.
People can still cut down on any other service, but food is an essential item that will always have robust demand. Every passing month has brought a rise in demand for the food and beverage industry. According to the National Restaurant Association, sales for food services and drinking places increased for the third straight month.
In July, sales fell 19% from the year-ago period, another monthly improvement after sales dropped 22.4% in June and 38.1% in May. So the trend is pretty straightforward – we are firmly on the path to recovery.
Covid-19 cases are dropping all over the country, but God forbid if cases start to rise again, you would want to park your capital in stocks that have a safe and secure future.
That’s why we bring you these three hot food stocks to buy:
Food Stocks: Texas Roadhouse (TXRH)
The casual dining industry is going through a tough time at the moment. Disposable incomes are falling, and unemployment numbers are still very high. However, dine-in restaurants are slowly shrugging off the effects of Covid-19 and returning to profitability. That recovery is reflective in the markets as well, as many food stocks have regained a lot of ground lost to the virus, chief among them, Texas Roadhouse.
TXRH stock is up 13.51% in the last month, quite a healthy uptick considering demand has not returned to pre-pandemic levels. Due to the virus, people still prefer to order their food online and have it delivered. But several things are going well for TXRH that is helping in its strong performance. It has a clean balance sheet and operations shifts to handle higher to-go orders. The Kentucky-based food joint also has a prominent brand name that is famous among barbeque lovers.
But despite all these positives, TXRH stock is still trading at very high multiples. Although that may put you off, I want you to note that shares are still trading at a discount to the 52-week high of $72.49 per share. So, you still have a very attractive point of entry to a stock that has a solid long-term growth story.
Dunkin’ Brands (DNKN)
Canton, Mass.-based Dunkin’ Brands is a holding company for two major American multinational chains, Dunkin’ and Baskin-Robbins. The recent quarterly results were reasonably upbeat, especially considering we are in the middle of a pandemic.
Revenues came in at $287.4 million, beating analyst estimates by approximately $11.9 million. Although same-store sales declined for both Baskin-Robbins and Dunkin’ Donuts, the situation wasn’t as bad as some analysts predicted.
You can chalk the excellent performance down to a couple of things. Firstly, Dunkin’ decided to remain open at a time when most companies chose to shutter down. Although a risky strategy, it paid off in the end.
Meanwhile, a majority of U.S.-based Baskin-Robbins outlets – 93% to be exact – offer delivery. The crisis acted as a natural tailwind for retail sales, leading to a 250% spike over the year-ago period.
The main thing to note here is that Dunkin’ management devised and successfully implemented a strategy that helped weather the crisis and come out stronger. That’s the kind of astute management that keeps companies profitable. And you would certainly want a slice of that aptitude in your portfolio.
Few stocks are as reliable as McDonald’s. It has a Superman-like universal appeal. Hence, it was unlikely that Covid-19 would have a massive impact on its results. As it turns out, the effect was even more minimal than initially thought.
Same-store sales increased in the fiscal second quarter by a marginal amount. Retail sales finished at approximately $19 billion, beating consensus estimates by around $3.47 billion.
Drive-thru orders represented 90% of total retail sales for the quarter, an expected development considering Covid-19. But what was most heartening was that by the quarter nearly all of its restaurants were open for business.
Looking ahead, the company has outlined an aggressive expansion strategy that includes advertising, value meals and new locations. In-restaurant dining will also make a comeback in the forthcoming quarters, as Covid-19 recedes into the backdrop.
I won’t talk valuation here because MCD has always traded at high multiples. You can chalk that down to its stable history of returns and rock-solid fundamentals. But even though it’s expensive, you can’t go wrong with having MCD stock in your portfolio.
Disclosure: On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.