In a surprising turn of events, business leaders are complaining of a “worker shortage,” as the U.S. economy continues to shrug off the effects of the pandemic. This is particularly distressing for restaurant stocks. Due to the unemployment payments and stimulus checks, people are now less likely to take low-paying fast food and retail jobs.
Everyone has their own way of looking at this. Democrats, for example, argue that the companies could raise pay if they really wanted workers back quickly. The other side of the aisle believes slashing benefits will create more incentive to work.
Regardless, investors are spooked. If their investments are in companies finding it hard to recruit quality employees, their portfolios will ultimately suffer. Luckily, several restaurant stocks are safe investments even in the current climate. That can be due to multiple reasons, brand loyalty, investments in digital infrastructure, or astute management.
Maybe, it all of the above?
The point is that there are restaurant stocks that are doing well. And have been doing well for quite some time. In fact, there are some for whom the pandemic has acted as a tailwind.
If you want to know more about these companies, I suggest you read on and find out:
- Jack in the Box (NASDAQ:JACK)
- McDonald’s (NYSE:MCD)
- Papa John’s International (NASDAQ:PZZA)
- Restaurant Brands International (NYSE:QSR)
- Chipotle Mexican Grill (NYSE:CMG)
Restaurant Stocks: Jack in the Box (JACK)
Jack in the Box is one of the big winners of the pandemic. The American fast-food restaurant chain was able to do well during these testing times because it had a franchise model, which allowed the company to operate differently from most other restaurants.
Stores were ready to duke it out with national and multinational brands because of good staffing and established drive-thru windows. Ultimately, the business model paid dividends, resulting in the hamburger chain reporting positive earnings beats quarter after quarter during this crisis.
Admittedly, this has led to the stock becoming somewhat expensive. However, bullish sentiment has pushed up shares, and considering the excellent performance, no one should expect the stock to slow down.
Any list of restaurant stocks cannot be complete without McDonald’s. It is as American as apple pie. And although the fast-food giant holds a distinctive place in the upper echelons of restaurant stocks, one cannot say enough good things about it.
From every perspective, McDonald’s is a winner. Operating performance is solid and has been that way for quite a while. Most recently, the fast-food giant reported another stellar quarter. Both EPS and revenue blew past analyst estimates, and in light of the strong performance, McDonald’s boosted its outlook for systemwide sales growth.
Fiscal first-quarter net income came in at $1.54 billion, or $2.05 per share, up from $1.11 billion, or $1.47 per share, in the year-ago period. Global same-store sales jumped 7.5% in the quarter, exceeding 2019 levels. Although the global performance was excellent, same-store sales growth of 13.6% in the United States deserves special mention.
McDonald’s U.S. President Joe Erlinger said that the segment had approximately $1.5 billion in digital sales during the first quarter. Thus, MCD stock looks all set to go from strength to strength, having already returned to pre-pandemic levels of growth.
Restaurant Stocks: Papa John’s International (PZZA)
Pizza giant Papa John’s also had a very successful 2020. Demand for its products was very high. And the company managed to increase sales by 12% last year. In addition, pizza was a tried-and-true bet for many consumers who did not want to experiment with food choices during a pandemic. That helped companies like Papa John’s outpace the competition.
Management deserves a lot of credit for staying ahead of the curve. For example, in late December, the fast food giant introduced its Epic Stuffed Crust pizza. This new form of pizza greatly helped in driving the returns for an excellent first quarter.
“Q1 has been the culmination of all of those things, amplified by the launch of Epic Stuffed Crust. It has been a huge success for our system, bringing in a whole new wave of customers, exceeding our expectations and increasing our ticket average, because it’s a premium pizza,” CEO Rob Lynch said on the subject.
Net income came in at $33.9 million, or 82 cents per share, a substantial uptick from the year-ago figures of $8.4 million, or 15 cents per share. In addition, revenue shot up roughly 25% to $511.7 million from $409.9 million, beating estimates of $471 million.
In North America, same-store sales jumped 26.2%, beating the gain of 14.6% expected by analysts. On the international front, same-store sales increased 23.2% in the quarter, handily beating forecasted growth of 17.4%.
With this kind of strong growth, it is not surprising why this is a ‘best in class’ stock.
Restaurant Brands International (QSR)
Restaurant Brands International has charted an interesting course. The present version was brought to life by Pershing Square Capital Management founder Bill Ackman, who is in the news these days because of his newest SPAC, or special purpose acquisition company.
These obscure vehicles took the world by storm last year. But Ackman was active in the space way before other investors took notice. In 2011, he launched Justice Holdings as a blank-check company, which then acquired Burger King.
Ackman then worked a deal with 3G Capital to merge Burger King and other popular brands under the Restaurant Brands International umbrella.
Phew, now that the history lesson is over, we can report on QSR itself, which has had an amazing year thus far. Shares are up 32.3% in the last year, and there is nothing to suggest that the momentum should stall.
In the last six quarters, the holding company has managed to beat analyst expectations four times. In its latest quarterly report, QSR reported EPS of 55 cents versus a consensus of 50 cents, a beat of 10%.
An area of concern for analysts is Burger King’s continued loss of market share to McDonald’s and Wendy’s (NASDAQ:WEN). However, it’s not a major headache for shareholders since its portfolio includes Burger King, Popeyes, and Tim Hortons.
But it can become a sticking point moving forward if things do not improve.
Restaurant Stocks: Chipotle Mexican Grill (CMG)
Chipotle is a younger brand than most other companies on this list. However, the fast-casual eatery is benefitted as millions of Americans sampled its food services with pre-orders, delivery, drive-thrus, etc., during the pandemic. A major reason for its success is down to heavy investment in automation.
Plus, since the company has invested heavily in digital infrastructure, it could lay off and furlough its employees yet still manage affairs quite effectively. So if the worker shortage gets severe, this is one company that has all the chops to survive and then some.
In the fiscal first quarter, the fast-food giant reported net income of $127.1 million, or $4.45 per share, up from $76.4 million, or $2.70 per share, a year earlier. Net sales rose 23.4% to $1.74 billion, and same-store sales climbed 17.2% compared with the same time a year ago and 21% from 2019 levels.
Digital sales are a huge driving force in this performance. Chipotle is conscious of this fact and has launched digital exclusives like quesadillas leading to online orders more than doubling and accounting for 50.1% of total sales.
CEO Brian Niccol said that about 1-in-10 customers ordered the quesadillas, resulting in the highest number of new customers in March.
Shares are down about 7% in the last month, making it one of the best buying opportunities out there.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.