My Favorite Restaurant Stocks This Holiday Season

Restaurant Sector Bullish in 2014The holidays are just around the corner, and for the restaurant sector, that means big business, as people shop, dine, and head to the theaters.

From fast food outlets like McDonalds Corporation (NYSE/MCD) to steakhouses like Ruths Hospitality Group, Inc. (NASDAQ/RUTH), the holidays are a key time for the restaurant industry and a buying opportunity for investors in this sector.

The upward move in the sector has been strong, as shown on the chart of the Dow Jones U.S. Restaurants & Bars Index below. Note the upward trend marked by several breakouts. We are currently seeing some hesitancy, but I would look at weakness as a buying opportunity.

Dow Jones US Restaurants and Bars Index Chart

Chart courtesy of

And as we move into the New Year, the key will be the jobs market and the economic renewal. Continued jobs growth will offer consumers added confidence to want to spend on non-essential goods and services, such as restaurant dining.

At the top of the food chain, in my view, continues to be McDonald’s, which remains a strong buying opportunity. (Read “McDonald’s Proving Position as ‘Best of Breed’ in the Fast Food Sector.”)This is the company every fast food operator wants to emulate.

However, the stock that I feel has the right blend of ingredients to succeed and is a possible buying opportunity is Chipotle Mexican Grill, Inc. (NYSE/CMG). While the price point is slightly higher than McDonald’s, the availability of ultra-fresh ingredients at Chipotle are a selling point for consumers, making the company a threat to steal market share away from others and a possible buying opportunity in the fast food sector.

Chipotle Mexican Grill Inc. Chart

Chart courtesy of

On the other hand, if you prefer more of a sit-in, moderately priced restaurant where you can enjoy a steak, drink a “Bud,” and watch sports, then Texas Roadhouse, Inc. (NASDAQ/TXRH) may be worth a look as a buying opportunity. The chain includes more than 400 restaurants across 48 states and two countries.

Texas Roadhouse Inc. Chart

Chart courtesy of

The company is a model of consistency, reporting higher sequential revenue growth over the past 11 years, from $159.91 million in 2001 to $1.26 billion in 2012. The growth is expected to continue, with revenues estimated at $1.42 billion this year, up 12% year-over-year, and rising another 10.4% to $1.56 billion in 2014, according to Thomson Financial.

Texas Roadhouse has also delivered on the earnings end, reporting higher earnings in 10 of the last 11 years, continuing into 2013 and 2014, which presents a possible buying opportunity.

A contrarian small-cap restaurant stock that may be worth a look as a buying opportunity for speculators is Ruby Tuesday, Inc. (NYSE/RT), which has struggled and could still be years away from a turnaround. The company is losing money and is expected to see revenues contract 6.9% this year; however, they’re expected to edge up 1.7% in 2014, according to Thomson Financial. Ruby Tuesday may be worth a look on weakness toward the $6.00 or under level; otherwise, it’s a work in progress.