- With consumers growing weary of the new normal, restaurant stocks may absorb downwind benefits as people take that long overdue vacation.
- Darden Restaurants (DRI): Featuring over 1,800 locations, Darden features a wide footprint to absorb domestic travel demand.
- McDonald’s (MCD): An icon of capitalism, over 85% of Americans eat at McDonald’s at least once a year, making it one of top restaurant stocks.
- Restaurant Brands International (QSR): QSR can also soak up domestic and international travel demand through its popular brands.
- Ruth’s Hospitality (RUTH): Among the few restaurants stocks in the black this year, RUTH stock caters to a wealthy consumer base.
- Dave & Buster’s Entertainment (PLAY): With more people likely forced to go back into the office, PLAY could be an intriguing idea.
- Uber Technologies (UBER): Thought not a direct play on restaurant stocks, Uber Eats can be a source of familiarity for travelers.
- RCI Hospitality (RICK): For gentlemen with “refined” tastes, RCI provides an alternative take on entertainment.
Amid soaring inflation and worrying volatility in the global equities space, will Americans still make good on their vacation plans this year? The answer might be yes depending on how strong their sense of revenge travel is. Because of the unprecedented impact of the coronavirus pandemic, millions of households endured lockdowns and mitigation measures. But after two years, they’re sick of it, potentially boding well for restaurant stocks to buy.
For one thing, consumers may be eyeballing the domestic market for their travel intentions. While the concept of revenge travel has been a dominant theme since the summer of 2020, not all international locations are open for foreign tourists. In addition, while the skyrocketing inflation rate has impacted almost every product segment, energy costs have jumped the most. Thus, vacationers may travel closer to home, possibly benefitting restaurant stocks.
Second, if people are forking over the money to enjoy experiences denied to them over the past two years, they’ll likely not want to cook but eat out. In addition, while we’re complaining bitterly today, several households saved a tremendous amount of money in the early months of the Covid-19 pandemic. Folks will be looking to spend some of that war chest, again boding well for restaurant stocks to buy.
Keep in mind this isn’t to dismiss the myriad problems facing the global economy today. But with Covid fatigue being a problem only months after the initial onslaught, the urge to vacation could be overwhelming. Therefore, these restaurant stocks should be on your radar.
|DRI||Darden Restaurants, Inc.||$132.80|
|QSR||Restaurant Brands International Inc.||$56.96|
|RUTH||Ruth’s Hospitality Group, Inc.||$21.44|
|PLAY||Dave & Buster’s Entertainment, Inc.||$46.30|
|UBER||Uber Technologies, Inc.||$30.39|
|RICK||RCI Hospitality Holdings, Inc.||$64.55|
Restaurant Stocks: Darden Restaurants (DRI)
Featuring a massive footprint of over 1,800 locations, Darden Restaurants (NYSE:DRI) is set to be one of the biggest beneficiaries among restaurant stocks, especially if travelers focus their intentions domestically. With nearly 160,000 team members, Darden is also one of the 50 largest private employers in America. In a way, even if you weren’t interested in DRI, it could serve as a useful economic barometer.
Regarding the soaking up of demand from revenge travel, Darden features an eclectic mix of eatery brands. On one end of the scale, Olive Garden is a family and budget-friendly location with huge down-home appeal, while brands like Seasons 52 appeal to those with more discretionary income to splurge. Somewhere in the middle is LongHorn Steakhouse, another favorite that fits most budgets.
The risk with DRI is whether the consumer will respond to the underlying offerings. As of the end of April, shares were down 11.5% year-to-date. Still, if demand for vacations picks up over the spring and summer season, Darden stands to benefit.
An icon of capitalism, it might seem like a stereotype that Americans love McDonald’s (NYSE:MCD). But the data does lend support to this reputational association. According to a Business Insider article from April 2021, more than 85% of Americans visit McDonald’s at least once a year. This statistic is helped by the fact that there is “roughly one McDonald’s restaurant per 24,000 people in the US.”
Obviously, if American vacationers decide to focus on domestic locales, MCD would then be among the restaurant stocks to soak up downwind dollars. In this manner, the Golden Arches has two key advantages. First, its food is cheap. I’d argue that you’re paying with your health in the long run but right now, the health of the wallet is on most people’s minds.
Second, quite a few McDonald’s locations are open 24/7. Sometimes, stuff happens when you’re on vacation. When it does, you can always look to this fast-food icon for a quick pick-me-up.
Restaurant Brands International (QSR)
Another competitor in the fast-food and fast-casual sectors is Restaurant Brands International (NYSE:QSR). Thanks to its brands Burger King, Popeyes, Firehouse Subs and Tim Hortons, QSR while smaller than its bigtime rivals packs quite a punch among restaurant stocks to buy. Though tastes of course vary across individual consumers, QSR provides a delectable alternative to the standard fare.
Again, this is an opinion piece but Business Insider gave Burger King a slight edge compared to McDonald’s thanks to the former’s superior French fries and more balanced burger. From my own recollection, Burger King products seem fresher than its iconic rival. But no one will argue against the popularity of Popeyes, which attracts customers far and wide.
Also, QSR can robustly benefit from Tim Hortons, which is basically the McDonald’s of Canada. As you may know, our northern neighbor is a popular destination for tourists. Prior to the Covid-19 pandemic, it generated $104.9 billion in tourist spending. A return to those figures could spell good things for QSR stock.
Restaurant Stocks: Ruth’s Hospitality (RUTH)
One of the more intriguing ideas among restaurant stocks to buy, Ruth’s Hospitality (NASDAQ:RUTH) spelled trouble when the Covid-19 crisis initially breached our borders. Due to a shutdown of non-essential businesses, RUTH was on life support, evidenced by its single-digit share price during the spring 2020 doldrums.
Today, RUTH is one of the few restaurant stocks that’s in the black for the year, though barely at nearly 3% YTD. Still, with the underlying Nasdaq index down 22% – basically bear-market territory – 3% up is a remarkable performance.
Arguably, it’s fundamentally justified. Ruth’s caters to a wealthier clientele: it’s one of those establishments that has a dress code. And if you dress toward the lower end of the social spectrum, you’re going to attract unwanted attention. However, from an investment perspective, RUTH is one of the restaurant stocks that’s relatively insulated from inflationary concerns.
As well, travelers who have spent much of the past two years cooped up at home may be ready to splurge to make up for lost experiences. Thus, post-pandemic, Ruth’s is in a much better place.
Dave & Buster’s Entertainment (PLAY)
Like Ruth’s above, Dave & Buster’s Entertainment (NASDAQ:PLAY) seemed destined for the abyss when the Covid-19 crisis struck. Basically a Chuck E. Cheese for adults, Dave & Buster’s is an experience as well as a popular name among restaurant stocks. Not being there is simply not the same. However, the company has made a remarkable recovery.
PLAY is also one of the few restaurant stocks to buy that’s in the black so far this year. The key difference, though, is that the security is actually performing well, up 16% YTD. With the major blue-chip indices all swimming in red ink, Dave & Buster’s has flipped its 2020 paradigm on its head two years later. Should vacation plans feature a domestic bias, PLAY stock could swing even higher.
Another factor also may help the entertainment firm and that’s the potential end of working from home. Mainly, employment research indicated that before – yes, before – the pandemic, workers wasted more than two hours a day on the clock, translating into billions of wasted dollars.
Your boss isn’t dumb, but at least Dave & Buster’s can provide some copium.
Uber Technologies (UBER)
Though not a direct play among restaurant stocks to buy, Uber Technologies (NYSE:UBER) could be a speculative downwind beneficiary should travel demand pick up. Primarily, the company’s Uber Eats platform may prove popular in the prime vacationing months ahead. Connected to eateries across the nation, the app can be a source of comfort for travelers in new locations.
Also, the core business – ride sharing – commands obvious relevance if consumers ignore rising inflation and decide to leave the home for some rest and recreation. Here, the company’s domestic and international angle gives the app a serious advantage. Personally, I’ve used Uber to get around in foreign countries and I see no better way to travel, especially when you’re in questionable areas.
Now, the downside to UBER stock is that it’s risky. Down over 28% YTD, the security is performing worse than many other restaurant stocks. However, if you don’t mind absorbing a potentially volatile ride, UBER could be interesting in the next few months.
Restaurant Stocks: RCI Hospitality (RICK)
As its name suggests, RCI Hospitality (NASDAQ:RICK) is in the hospitality industry – as in very hospitable. Typically geared toward gentlemen with a refined taste – though women guests are of course welcome, I mean, not that I know or anything – RICK typically falls under the vice category as opposed to restaurant stocks to buy.
However, many of the establishments under RCI serve food: again, I’m not speaking from personal experience but from information provided by its website (which I might say is borderline NSFW for those who have been recalled to the office). But the company also owns the Bombshells restaurant brand, which is like Hooters for the military.
Now, all joking aside, RICK owns the distinction as being one of the restaurant stocks to buy in case a recession hits. Amid the chaos of the Great Recession, CNBC reported that this “special” class of eateries saw business boom.
People have their basic needs: eating, sleeping and something else. It’s the latter that may help lift RICK stock.
On the date of publication, Josh Enomoto 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.