Hot dog restaurant chain Portillo’s (NASDAQ:PTLO) held a successful initial public offering (IPO) in mid-October that raised $400 million, and that has put food in focus for many investors. Founded in 1963, Oak Brook, Illinois-based Portillo’s owns and operates 67 restaurants across nine U.S. states. The company sold 20 million shares at $20 apiece, and its stock has risen straight up since its market debut, currently trading at $51 a share.
In short order, the company has achieved a market capitalization of nearly $2 billion. And Portillo’s is one of several restaurant chains that have gone public this year looking to capitalize on the economic reopening.
First Watch Restaurant Group (NASDAQ:FWRG) and Dutch Bros. (NYSE:BROS) also held successful IPOs. With food in focus, we look at three established restaurant chains whose stocks investors should have in their portfolios.
Restaurant Stocks to Buy: McDonald’s (MCD)
McDonald’s remains the world’s largest restaurant chain with operations in 100 countries and annual revenues of more than $20 billion. The company that was founded in 1940 today serves nearly 70 million people a day.
MCD stock has been a consistent winner over the years, delivering a 125% gain over the last five years. More recently, MCD stock has been enjoying a breakout after delivering strong third-quarter results in October, rising 6% to its current level of $253.46 per share, topping its all-time high of $252.22. The company managed to deliver solid gains to shareholders during the pandemic having risen 17% over the past year.
Key to McDonald’s success is its constant expansion and innovation. The company just launched its new McPlant burger that is made with Beyond Meat’s (NASDAQ:BYND) beef substitute, the latest menu adaptation aimed at capturing the public’s attention. Earlier this year, the company introduced a new chicken sandwich that was promoted with help from rapper Saweetie.
It is these constant menu innovations that helped McDonald’s same-store sales in the U.S. rise by nearly 10% in Q3 from a year earlier. MCD stock also pays a decent quarterly dividend that yields 2.2%, and which the company has increased for 45 consecutive years.
Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill is another long-term winner among restaurant stocks. A true Clydesdale, CMG stock never seems to stop working for its shareholders. The share price has grown 380% during the last five years, including a 30% increase so far in 2021.
At $1,806 per share, Chipotle stock is not cheap, and there are constantly calls for the company to split the shares (something it hasn’t done since going public in 2006). But for investors looking for a restaurant stock that seemingly can’t lose, Chipotle makes for a sound choice. The company’s menu that consists primarily of tacos and burritos is enormously popular across the U.S.
With 2,000 restaurants and annual revenues approaching $6 billion, Chipotle still has plenty of runway ahead of it when it comes to international expansion as the company currently operates in only five countries, including the U.S. and Canada. The pandemic and subsequent recovery have done nothing to slowdown the burrito maker’s trajectory.
Chipotle just announced its latest financial results that showed record revenue of $1.95 billion, up 21.9% from a year ago. Average sales per restaurant reached $2.48 million for the past 12 months, compared to $2.19 million for the previous 12 months. And Chipotle reported that its earnings per share surged 87% year-over-year to a record of $7.02. Those kinds of results should keep CMG stock buoyant for years to come.
Restaurant Stocks to Buy: Shake Shack (SHAK)
Shares of Shake Shack just popped 7% in one day to $75.88 ahead of the company’s upcoming third quarter earnings and as a slew of analysts slapped “buy” ratings on the stock. The New York City-based company that began its life as a hot dog cart today sells hamburgers, fries and its signature milk shakes.
While it has been a publicly traded company since 2014, Shake Shake remains a smaller restaurant chain than the aforementioned McDonald’s and Chipotle, having only about 250 outlets in the U.S. and abroad. Still, the company has developed a loyal, almost cult-like, following among its customers.
SHAK stock has had a rough ride this year and remains down 8% since January at its current price. But there is hope the stock is now turning a corner and ready to break back above $100 per share and maybe even retest its 52-week high of $138.38.
The company recently announced a new partnership with FreedomPay to provide additional payment option to its customers, both online and in-person at its restaurants. Several analysts have been upgrading the stock lately, including Truist Financial (NYSE:TFC) analyst Jake Bartlett, who raised his rating on the company’s shares to “buy” from “hold” with a price target of $90.
On the date of publication, Joel Baglole held a long position in SHAK. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
