7 Lean, Mean Restaurant Stocks That Should be on Investor Radar Screens

restaurant stocks - 7 Lean, Mean Restaurant Stocks That Should be on Investor Radar Screens

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Although the novel coronavirus slammed America’s hospitality industry, several restaurant stocks are poised — and hoping — for better days.

Many publicly traded restaurant companies adapted to the pandemic. Bank of America (NYSE:BAC) reviewed credit card data and found consumer spending at large chain restaurants returned to positive territory by July. Small restaurant chains and independent businesses showed improvement but lagged the big players, the bank said.

After weathering a market crash, lockdowns and other disruptions, these firms look to improve their results in 2021. Circumstances were challenging in 2020 as take-out and delivery sales became the norm. Some restaurant companies were suited to make the abrupt change, especially those geared to drive-up services.

Others, meanwhile, had to get creative and find ways to pivot. Some shuttered locations, expanded outdoor dining, and reconfigured their menus and operations to accommodate increased to go and delivery orders.

For much of the year, restaurant stocks reflected the pandemic’s pressures on the industry. This presented opportunities for investors able to take advantage.

As the new year approaches, outlooks are buoyed by the delivery of vaccines designed to protect against Covid-19 and the expected positive economic effects.

Here are seven restaurant stocks that should be on investors’ radar screens:

  • Cracker Barrel Old Country Store (NASDAQ:CBRL)
  • Darden Restaurants (NYSE:DRI)
  • Wendy’s (NASDAQ:WEN)
  • Starbucks (NASDAQ:SBUX)
  • Chipotle Mexican Grill (NYSE:CMG)
  • Restaurant Brands International (NYSE:QSR)
  • Yum! Brands (NYSE:YUM)

Restaurant Stocks: Cracker Barrel Old Country Store (CBRL)

Cracker Barrel Old Country Store sign on the outside of one of its locations
Source: Jonathan Weiss / Shutterstock.com

Perhaps best known for its hidden-in-plain-sight locations next to interstates, Cracker Barrel Old Country Store faced a severe threat from the pandemic’s disruption.

For one thing, these store-restaurant combinations do not have drive-thru lanes. And customers who rely on home or curbside delivery won’t be inside, where they would be tempted into making impulse buys in the retail store that’s between the dining room and the exit. Those minutes waiting for a table or for the bill to be paid are a potential retail gold mine. It’s no accident, you see, that the path to restrooms goes through the store area.

The chain enjoys a loyal client base who know what to expect on the menu. Prior to the pandemic, Cracker Barrel was beginning to promote pick-up service. This likely helped the company change gears once indoor dining became problematic.

If something resembling the old normal can be found in 2021, CBRL stock is one of the restaurant stocks that will quickly benefit.

Darden Restaurants (DRI)

an Olive Garden sign on the front of the restaurant
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Casual dining leader Darden Restaurants is on our list of dining stocks even though it also was challenged by pandemic restrictions. Like Cracker Barrel, the company had to ramp up its take-out services and facilitate delivery drivers so food could reach customers quickly.

In addition, the owner of well-known chains like Olive Garden and Longhorn Steakhouse made a number of adjustments behind the scenes. These changes include refining menus, simplifying kitchen systems and a new approach to sales promotions. The results impressed analysts who are increasingly bullish about DRI’s prospects for 2021, according to Zacks Investment Research.

Indeed, shares of DRI stock gained about 38% in the last six months, and Zacks said recently that earnings estimates are up 0.5%.

Wendy’s (WEN)

Source: Jonathan Weiss / Shutterstock.com

At first glance, restaurant stocks that focus on fast-food would be among those best-positioned for adjustments demanded by consumers during the pandemic. Most of them were built with drive-thru windows, which quickly became mandatory as indoor dining was avoided and/or banned.

The WEN stock price halved in the early weeks of the pandemic, gradually making its way back shortly after Memorial Day.

But Wendy’s suffered an unusual setback early on when supplies of fresh beef were interrupted.

The chain eventually sorted its supply-chain issues. Then, it was positioned to take advantage of another twist in the Covid-19 saga when chicken sandwiches became the rage. Wendy’s chicken sandwiches have a devoted following and the company increased its offerings when the consumers made their wishes known.

Other companies also are responding to the chicken sandwich demand curve.

Meanwhile, Wendy’s also bolstered its breakfast menu as the pandemic also altered diners’ quest for early morning options for take-out food.

Wendy’s third-quarter performance was comparatively weak but the company is sitting pretty for a rebound during the new year.

Starbucks (SBUX)

Starbucks (SBUX) coffee cup on a counter
Source: Natee Meepian / Shutterstock.com

This Seattle-based coffee powerhouse may not come to mind when compiling a list of restaurant stocks, but Starbucks is here because of its size and it is more than just coffee.

Like many chains, its quarterly performance suffered during the pandemic but down does not mean out. And SBUX is ready to go. As my InvestorPlace colleague Mark Hake says, SBUX stock will rise on positive earnings in the future.

“In other words, down is up. The worst the results are, the more the company and hence the stock can recover. In fact, Starbucks stock already reflects this reality.”

From August to December, SBUX stock was up 35%.

Starbucks will benefit from its enormous reach, both in the U.S. and beyond. Its recognizable shops can be found in urban centers and the suburbs, inside larger stores or in a standalone location near a busy street corner. The company also smoothly increased take-out and curbside pick-up options.

SBUX stock is expected to bring results to shareholders.

Chipotle Mexican Grill (CMG)

Chipotle Mexican Grill has, time and again, shown itself to be among the most resilient of restaurant stocks.

During the months when the company contended with contamination and data-security issues, Chipotle learned how to listen to wary consumers and satisfy their concerns. It was a thorny situation that was difficult to eliminate. But the company skillfully navigated through it. That experience likely also prepared it for the pandemic, as Chipotle quickly shifted to meeting take-out and delivery demands. It also was ahead of others with digital ordering.

In the last year, CMG stock dipped to $415 and now is trading not far from its high of $1,425.

InvestorPlace writer Chris Markoch describes the company very well, saying it rose “like a phoenix from the ashes.”

“The chain is hitting all the right notes with a generation that desires healthy, fresh food options,” he writes. “The company also changes their menu frequently, which adds to its appeal.”

While CMG stock may be highly valued now, this is an attractive choice among restaurant stocks.

Restaurant Brands International (QSR)

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Restaurant Brands International made this list of food stocks because two of its holdings, Popeyes and Burger King, had a head start on meeting dining restrictions because of those drive-thru lanes. Yes, lines grew but diners had convenient options.

And Popeye’s has tasty chicken and is competing in the aforementioned chicken-sandwich skirmish.

InvestorPlace’s Josh Enomoto recently included QSR stock in his summary of food stocks set up well for the pandemic surge. He says his local Popeyes has the longest lines compared to other chains.

“Throughout this awful pandemic, nothing has changed – demand is through the roof,” he writes.

To get through the restrictions, restaurants have shown that they need more than easy access for ordering and take-out. The essential part of the puzzle is quality, consistent quality. That’s something that Restaurant Brands delivers.

Yum! Brands (YUM)

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Yum! Brands franchises a trio of long-established restaurants — Pizza Hut, Kentucky Fried Chicken and Taco Bell. These were suited for today’s weak economy and pandemic dining restrictions. Not only are these restaurants faring well in this take-out and delivery era, they are also set to build on this once the Covid-19 threat is contained.

“I expect this trend to continue as Americans grow used to getting their restaurant food using those methods and enjoy doing so,” Larry Ramer wrote recently on InvestorPlace.

Yum’s diversified slate of well-known restaurants gives the company several ways to makes sales. It’s digital outreach was key. Earlier this year, it was outperforming major competitors. Diversity and strong forward momentum combined to put YUM stock on the list of food stocks to buy.

On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.


Article printed from InvestorPlace Media, https://investorplace.com/2020/12/restaurant-stocks-7-lean-mean-stocks-to-buy-cbrl-dri-wen-sbux-cmg-qsr-yum/.

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