The restaurant industry will be one of the beneficiaries. If you are interested in investing in restaurant stocks, do not wait until the summer to establish a position as anticipated revenue spikes will be baked into the industry’s stocks by that point.
Let’s take a look at four Strong Buy restaurant stocks worthy of your attention as economic activity gradually returns to normal: Starbucks (SBUX), Chipotle Mexican Grill (CMG), Yum! Brands (YUM) and Restaurant Brands International (QSR).
SBUX was worthy of your investing dollars before and also during the pandemic. Once life returns to normal, SBUX will still be worthy of your money. Ask coffee aficionados which brands they prefer and many will highlight SBUX’s offerings. Though SBUX coffee is bold, rich, and expensive, it is worth every penny. Furthermore, SBUX also sells tea and food to boot.
A large part of SBUX’s appeal is its leadership’s refusal to rest on its laurels. Instead of moving forward with traditional coffee shops that have ample space for people to spread out, work, use their smartphones and socialize, SBUX has partially pivoted, choosing to close many such spacious shops in favor of comparably small on-the-go takeout locations. Customers can order SBUX delights on their mobile devices, pay beforehand, walk right into their neighborhood SBUX location, pick up their order, and exit in mere seconds. In short, SBUX has efficiency down to a science.
If you are still hesitant to invest in SBUX, consider its elite POWR Ratings components. SBUX has “A” grades in the Buy & Hold Grade and Trade Grade components. SBUX is ranked first of 50 stocks in the Restaurants category. The analysts insist SBUX still has the potential to climb even higher, setting an average price target of $107.75 for the stock, meaning it has more than a 2% upside to go.
The icing on the cake is SBUX’s strong guidance for the years ahead. SBUX executives insist the company’s same-store sales will grow by 5% across the next three years, spurring revenue growth of 10% through ’24.
Chipotle Mexican Grill (CMG)
CMG food is fast, affordable, and much more fulfilling than that offered by most other restaurant chains. CMG offers customers the option of waiting in line, ordering ahead of time for pickup, or even having the chain’s tasty Mexican fare delivered. Though CMG has a forward P/E ratio of 127.70, its lofty price is somewhat justified considering its rapid growth rate and its vice-like grip on the consumers of the future: Generation Z and millennials.
The analysts agree CMG is slightly underpriced, establishing an average price target of $1,410.40 for the stock, indicating it has the potential to climb by at least 1-2% or more. Of the 23 analysts who have delved into CMG’s facts and figures, 13 recommend buying, 10 recommend holding and none advise selling.
CMG is set to add cilantro-lime cauliflower rice, smoked brisket, and enhanced quesadillas to its menu in the months ahead. Furthermore, CMG brass is testing a concept in which customers do not dine in the company’s restaurants, instead of carrying out their orders or simply having them delivered. This pivot bodes well for CMG because its in-store lines are notoriously long.
Yum! Brands (YUM)
If you are like most people, you love eating at KFC, Pizza Hut, Taco Bell, and/or Habit Burger Grill. Each of these chains is owned by YUM. KFC accounts for 40% of YUM revenue, Taco Bell accounts for 35%, Pizza Hut represents 17%, and Habit Burger Grill represents 8%.
All in all, YUM owns, operates, or franchises 50,000+ locations across 150 countries. The POWR Ratings show YUM has “A” grades in the Peer Grade, Buy & Hold Grade, and Trade Grade components. YUM is ranked third of 50 stocks in the Restaurants category.
You simply cannot go wrong investing in this fast-food powerhouse. Now that a vaccine is available, people will return to their normal ways, venturing out to YUM restaurants without hesitation.
Restaurant Brands International (QSR)
Tim Hortons might not be the most popular coffee shop in your area yet the chain certainly has a fervent fan base. QSR owns Tim Hortons as well as Burger King Worldwide and Popeyes Louisiana Kitchen.
The POWR Ratings show QSR has “A” grades in the Buy & Hold Grade and Trade Grade components. QSR is ranked 4th of 50 stocks in the Restaurants category. The market gurus are bullish on QSR, setting an average price target of $64.31, indicating the stock has at least 6% upside remaining.
QSR has a reasonable forward P/E ratio of 28 even though it is trading merely $7 below its 52-week high. Popeyes’ insanely popular chicken sandwich helped its same-store sales to soar 20%. However, comparable sales at Tim Hortons and Burger King locations have dropped.
As long as economic activity returns to a semblance of normal thanks to the arrival of several coronavirus vaccines, QSR business should pick up in the months ahead, helping the stock move toward $70.
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SBUX shares were trading at $106.25 per share on Wednesday morning, up $0.62 (+0.59%). Year-to-date, SBUX has gained 23.34%, versus a 17.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...
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