7 of the Top Restaurant Stocks to Serve Up InvestorPlace - Stock Market News, Stock Advice & Trading TipsThere's a lot going on these days, so it's best to keep it safe and simple when you're investing. Restaurant...
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InvestorPlace - Stock Market News, Stock Advice & Trading Tips
While the "will he, won't he" goes on regarding Vladimir Putin's Russia invading Ukraine, it's only one piece of the macro picture that's disturbing markets right now. That's why it's best to stick to restaurant stocks right now.
That may seem a bit strange, but they're certainly not experiencing any direct consequences of global politics or economics.
Second, they are certainly well positioned for upside here. Inflation may be rising, but wages are also rising and unemployment is low. That means restaurants are affordable again. And when you take off the delivery fees from food delivery companies, it can be cheaper than getting food delivered.
Third, we're at the point of inflection with Covid where it's less about isolating than it is about doing simple things to lower the risks of a less virulent form of the virus.
I recently featured my top food stocks, so it only makes sense that I also share with you my top-rated restaurant stocks as the industry gets back to growth mode.
- Darden Restaurants (NYSE:DRI)
- ONE Group Hospitality (NASDAQ:STKS)
- McDonald's (NYSE:MCD)
- FAT Brands (NASDAQ:FAT)
- Ruth's Hospitality Group (NASDAQ:RUTH)
- Arcos Dorados Holdings (NYSE:ARCO)
- Wendy's (NASDAQ:WEN)
Top Restaurant Stocks: Darden (DRI)
Aside from some of the massive fast food restaurants out there, one of the major players in fast casual to upscale dining is DRI.
From its iconic Olive Garden, LongHorn Steak House, Cheddar's and Bahama Breeze brands to its upscale brands like Capital Grille and Eddie V's, this is one of the top brands in the restaurant stocks game.
It has more than 1,800 restaurants and is one of 50-largest private employers in the country. And that means in a broad-based recovery, one of its chains will end up the ideal spot for one customer or another.
Also remember that restaurants actually make more money when people are eating at the restaurants, rather than ordering take out or delivery because it's easier on the kitchen and you can time service much better.
DRI stock has an $18 billion market cap, and has gained 5% in the past month. It also has a very solid 2.9% dividend, and a current price-to-earnings ratio just below 21x.
This stock has a "B" rating in my Portfolio Grader.
ONE Group Hospitality (STKS)
There's an old joke about a person who went to medical school to study diseases of the rich. And the kernel of truth in that joke is, if you cater to people with more disposable income, you have a demographic that is price elastic and manages economic ups and downs with more consistency.
STKS has launched a line of upscale restaurants across the U.S. and around the major cities of the world. Obviously, one of its leading brands is its STK Steakhouse. But it also has Kona Grill, Radio and Heliot Steakhouse as well.
STKS stock has a market cap just north of $400 million, so it's a smallish group, but very focused. Also, the stock has soared 105% in the past 12 months, so its market cap was much smaller a year ago. However, it has a P/E around 20x, so it's still a value.
This stock has an "A" rating in my Portfolio Grader.
Top Restaurant Stocks: McDonald's (MCD)
Weighing in with a $187 billion market cap, MCD stock is the king of restaurant stocks. However, fast food restaurants are generally franchise operations, so their business model is a bit different.
But in these times, a franchise model can be a good thing for the parent company. It means MCD sells all the product and supplies, all the equipment, furniture, branding, tech, etc., but it doesn't have to deal with upkeep of the physical space, staffing, or the other aspects of running a restaurant chain.
And given its already universally accepted drive-thru service, most restaurants have been doing a bang-up business since the pandemic began. And as seating restrictions are removed both in the U.S. and abroad, it's a good bet its dining rooms will fill up once again as well.
MCD stock has risen 19% in the past 12 months, which is certainly better than the S&P 500. MCD is also a dividend aristocrat, with decades of reliability in its dividend, which sits at 2.2% now.
This stock has a "B" rating in my Portfolio Grader.
FAT Brands (FAT)
Speaking of franchise operations, FAT has flipped the table on the franchise business. Instead of taking one brand and expanding that brand across the globe, FAT now has 17 different fast casual restaurant brands that it franchises.
Launched just five years ago, FAT is made up of brands that have been around in their respective markets for decades. Again, as a franchise operator, it can focus on managing the brands and supplying franchisees with the products and equipment they need and not worry about tending to physical properties or staffing.
This is the youngest and smallest of our restaurant stocks, with a market cap of just $176 million. That means it's a ground floor opportunity. But it also has the risks of a young company. However, its brand portfolio is impressive and diverse, so it could spinoff brands or double down on some. That flexibility is important.
FAT stock has gained 11% in the past 12 months, and it has a 6% dividend yield.
This stock has a "B" rating in my Portfolio Grader.
Top Restaurant Stocks: Ruth's Hospitality Group (RUTH)
The origin story of RUTH stock's restaurant, Ruth's Chris Steak House, is fascinating. In 1965, Ruth Fertel purchased the Chris Steak House in New Orleans. Then a fire struck and burned much of the restaurant. Ruth found a new property, and was ready to reopen in 10 days, but the name wasn't allowed to convey from the old space.
So, quick on her feet, Ruth decided to name the new place Ruth's Chris Steak House. And the rest is history. Or the future. RUTH now operates 150 restaurants in the U.S., Aruba, Canada, China, Japan, Indonesia, Mexico, Singapore and Taiwan.
Half of its restaurants are owned by the company, and the other half are franchised or operated under licensing agreements. It's a great model and it has what every steak house wants: It has a durable reputation for quality and comfort.
RUTH stock has performed very well during all the turbulence and is up 11% year-to-date. It also has a 2% dividend.
This stock has a "B" rating in my Portfolio Grader.
Arcos Dorados Holding (ARCO)
For non-Spanish speakers, the name of this company translates roughly as Golden Arches. Ah, now it becomes a bit clearer what offerings ARCO has. It is a major operator and franchise owner of McDonald's in the Latin America.
This type of arrangement isn't unusual. Many big companies spin off divisions, or in the case of franchise operations, have major franchise partners that own properties across states and even countries.
With a $1.5 billion market cap, ARCO has a substantial business going across North America, Central America, the Caribbean and South America. And it seems that business is going well. Comparable sales — excluding Venezuela — rose 24% on a two-year basis in Q4. And the company is expecting further sales growth.
That may be why ARCO stock has gained more than 40% in the past three months.
This stock has an "A" rating in my Portfolio Grader.
Top Restaurant Stocks: Wendy's (WEN)
During the pandemic and since its pacification for vaccinated people, WEN has been a big fast food beneficiary. Part of the reason goes into its savvy market research.
You see, the story goes when WEN was growing, it realized that instead of spending huge amounts of money doing market research for new locations, all it really had to do was follow where MCD was putting its restaurants and then find locations near them. And if you notice how close many are to one another, you'll see that old legend has some truth to it, it seems.
Today WEN stock has a $5 billion market cap and continues to strengthen its menu and bottom line. It recently added breakfast to its menu and the reviews have been good. And so have sales.
Like MCD, this isn't a fast grower. But it's a rock-solid, all-weather investment. WEN stock is up 10% in the past 12 months, and it has a 1.9% dividend.
This stock has a "B" rating in my Portfolio Grader.
On the date of publication, Louis Navellier has positions in DRI and STKS in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier, who has been called "one of the most important money managers of our time," has broken the silence in this shocking "tell all" video… exposing one of the most shocking events in our country's history… and the one move every American needs to make today.
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