With the economy slowly recovering from the inflationary period, we are seeing hospitality industries see a significant improvement in consumer demand. The summer ended on a positive note with high interest in dining out and this led to a significant surge in business for restaurants. As the economy continues to improve, we will see companies report better revenue numbers and the restaurant sector is one space that remains protected from the extreme highs and lows to a certain extent. This has led to the rise of restaurant stocks to buy.
Even when inflation was at its peak, we saw McDonald’s (NYSE:MCD) report strong numbers, proving that consumers may compromise on luxury dining but they will still need to fill their stomachs. With the increase in food delivery services across the world, restaurant companies have been able to add a new revenue stream, and this trend is set to continue for the next few years.
The companies also benefit from school holidays, and festivals and have their own peak seasons. With the upcoming festive season, I expect these companies to report high revenue and profits. As consumers start to open their wallets, smart investors know now is the right time to buy restaurant stocks. Let’s take a look at the most undervalued restaurant stocks to buy this month.
McDonald’s (MCD)
A personal favorite, I love McDonald’s for its burgers and its business. With people spending in the fast food space, this company is set to benefit. Its second-quarter results were impressive with a 12% rise in comparable store sales and a 10% rise in the U.S. market. McDonald’s is highly successful due to its franchise business and this allows it to keep the costs down while generating steady revenue.
MCD stock has been trading in the range of $275 to $288 for the past month. It is exchanging hands at $281 right now and I believe it will continue to remain in this range throughout this month. This makes it one of those restaurant stocks to buy.
While the stock isn’t cheap and it is inching closer to the 52-week high of $299, there is massive upside potential from the current level. The company is firing on all cylinders and if its business continues to grow at the same level, the stock hit a new high very soon. McDonald’s has seen a significant improvement in revenue due to the new menu additions, better customer service, and improvement in the digital order and delivery service. It is enjoying the best growth phase right now. Another reason to bet on the stock is its dividend yield.
MCD enjoys a dividend yield of 2.16% and has recently announced a quarterly dividend of $1.52. With this stock, there is low risk and high return in the form of steady dividends and capital appreciation. Several analysts have a positive outlook for the stock and Tigress Financial has set a price target of $355 with a buy rating. Do not wait for the stock to drop and grab it while you can.
Domino’s Pizza (DPZ)
A lot of investors thought that Domino’s Pizza (NYSE:DPZ) would not be able to survive the competition but the company bounced back with solid financial results and is one of the best restaurant stocks to own right now. This brought back investor confidence and also helped with the company’s growth. One driving force for the company is its growing presence in the global markets and it is expanding at a rapid pace.
In the second quarter, it managed to add 170 new stores globally and this is nothing but impressive. Its U.S. market remains highly profitable and the company posted a 10% rise in the operating income this quarter. This is another company that continues to benefit from the high franchise fees. Trading at $396 today, the stock is more expensive than several other restaurant stocks in the market but it will pay off in the long-term. The stock is up 16% year to date and is very close to the 52-week high of $409.
Domino’s has already invested in digital ordering which has been a significant contributor to the company’s revenue and has helped increase sales. The company saw a 6% year-over-year rise in sales and the management has aggressive plans for store expansions. It has also partnered with Uber (NYSE:UBER) to ensure high delivery growth through Uber Eats. Domino’s is putting its money towards store expansion and for the improvement in customer service which will pay off in the long term.
The company has a long history and a solid global presence which makes it one of the top stocks to keep on your radar. TD Cowen analyst has recently upgraded the stock to Outperform from Market Perform and RBC Capital has a price target of $460 for the stock.
Wendy’s Company (WEN)
There are multiple reasons to like Wendy’s Company (NASDAQ:WEN). Yes, it has delicious food but it also has an impressive dividend yield. This is one stock that will generate steady income as well as capital appreciation over the years. The company has a dividend yield of 4.79% which is much better than several other players in the industry. Wendy’s also has a very strong balance sheet and reported a revenue of $561 million in the recent quarter. Its adjusted EPS came in at $0.28.
The company saw a rise in franchise royalty revenues and higher sales. In this quarter, it also opened 41 new restaurants across the globe. Currently exchanging hands for $19, WEN stock is highly undervalued and has massive upside potential. It could double your money in the long term.
Wendy’s is already using artificial intelligence to keep up with the latest in the world of tech and this might help it get ahead of the competition. The company has incorporated AI into the drive-through ordering platform and is also working on an autonomous robot to help with food delivery. The future looks bright and there is a lot of upside possibility from the current level. It is one of the top restaurant stocks to buy this month.
On the date of publication, Vandita Jadeja did not hold (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.
