Today we switch our focus to another devastated group; restaurant stocks. We all know that current depressed prices are attractive enough for long term investors. The only real question is when do we officially hit bottom…and how much lower is that from here?
With that in mind let’s review the 4 most appealing restaurant stocks to buy when the time is right: Chipotle Mexican Grill (CMG), YUM! Brands (YUM), McDonald’s (MCD) and Restaurant Brands International (QSR).
Chipotle Mexican Grill (CMG)
Though it might be a couple weeks (or longer) until the masses return to CMG and other fast casual restaurant chains, CMG is poised to come back with a vengeance. Remember that CMG traded at $933 on February 19 yet the stock is down to $664 at the moment. Even if people are not comfortable standing in line at CMG restaurants, elbow-to-elbow with other customers, they will undoubtedly take advantage of CMG’s pickup and Uber Eats delivery options in the meantime.
The bottom line is the masses, especially those in the enormous and much-coveted millennial age cohort, will do just about anything to get their CMG fix. That shows up loud and clear in their long term track record of earnings growth. And it should very well show up again when the Coronavirus disappears in our rear view mirror. So do consider taking a bit out of CMG shares at this time for the long term benefit.
Yum! Brands (YUM)
YUM has some of the world’s most popular fast food chains in its portfolio: KFC, Pizza Hut and Taco Bell. If you enjoy the food served at these restaurants or believe the masses will continue to frequent these establishments, you have to opportunity to invest in YUM at the affordable price point of $69.66 per share.
Though Pizza Hut might not have the tastiest pizza or most innovative business model, KFC deserves credit for expanding its culinary horizons with plant-based chicken. Atlanta residents lined up by the hundreds to sample the plant-based fare when it debuted. Furthermore, Taco Bell is targeting the growing ranks of vegetarians, offering 50 meat-free menu options. If you believe the meatless craze will continue in years and decades ahead, then YUM is the one to add to your portfolio. Especially when experts, like the 5 Star analyst from Oppenheimer, pounded the table yesterday that shares are still worth $93.
McDonald’s Corporation (MCD)
MCD has a 52 week high of $222. Today, the stock is under $170. Though MCD has some inherent liability in the fact that the vast majority of its restaurants are owned by franchisees, the company deserves credit for providing takeout options during the coronavirus pandemic.
In short, MCD is built for the long haul. The company’s early entry into delivery apps combined with its incredibly efficient drive-thru system make it nearly bulletproof even if another pandemic were to occur in the years ahead. The only potential chink in MCD’s armor is the company’s neglect of vegetarians and vegans. As time progresses, that many more members of the millennial and generation Z age cohorts will embrace veganism and vegetarianism. At the moment, MCD does not have a strategy to bring these youngsters into the fold. But given their long history of innovation and change, then like MCD will adapt and find a way to win in this segment as well.
Investors get to enjoy an appetizing 3% dividend yield as MCD finds its way to bottom before the eventual climb back higher.
Restaurant Brands International (QSR)
QSR’s price has been chopped in half in nearly a month’s time. The massive decline is undoubtedly an overreaction to the coronavirus pandemic. However, foot traffic at QSR restaurants increased 11% between the midpoint of February and the midpoint of March. Consumers are clearly willing to take the slight risk involved in buying food at QSR restaurants ranging from Tim Hortons to Popeyes and Burger King.
With a forward PE ratio of 13, QSR is a solid value at its current price. The nearly 5% dividend yield also helps make it interesting to buy now awaiting a higher price down the road.
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CMG shares were trading at $653.12 per share on Thursday morning, up $3.64 (+0.56%). Year-to-date, CMG has declined -21.98%, versus a -19.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
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More Resources for the Stocks in this Article
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|YUM||Get Rating||Get Rating||Get Rating|