How to Profit from Institutional Investors’ Unwavering Love of These Stocks

One Sector Institutional Investors Love and You Should Know Everything About“Outback Steakhouse,” “Carrabba’s Italian Grill,” “Bonefish Grill,” “Fleming’s Prime Steakhouse and Wine Bar,” and “Roy’s” are all owned by Bloomin’ Brands, Inc. (BLMN). With 1,500 restaurants in the U.S. and 21 other countries, business for the company is solid.

Fourth-quarter sales grew 5.1% to $1.1 billion due to new restaurant openings and an increase in comparable restaurant sales. The company opened 15 new locations during the quarter and completed 36 restaurant renovations. This resulted in bottom-line earnings of $59.0 million, or $0.46 per share (with a one-time gain), or $34.2 million, or $0.27 per share, on an adjusted basis for a 35% gain over adjusted earnings in the same quarter of the previous year.

The company’s shares rose 12% on the earnings report.

If there’s one restaurant stock that continues to amaze with its share price performance, it’s Chipotle Mexican Grill, Inc. (CMG). This stock has more than doubled over the last 16 months and, while expensively priced, is still a powerhouse of growth.

The company’s earnings estimates have continued to increase since I last wrote about the stock in October. (See “Two Old Restaurant Stocks Offer Investors Growth.”) Fourth-quarter 2013 revenues grew 21% to $844 million, which is a huge accomplishment, all things considered.

Fourth-quarter earnings grew 30% to $80.0 million. The cost of food is the company’s single largest expenditure at 34% of total sales, followed by labor at 23%. Fourth-quarter comparable restaurant sales grew 9.3% and there were 56 new locations for a total of 1,595.

Anything double-digit is a big deal in today’s world, and you can find it in the right restaurant stocks. That’s why it’s so important to keep this sector on your radar.

It’s also worthwhile keeping an eye on any new initial public offerings (IPOs) related to the industry. The problem with IPOs is that they are almost always overpriced, but that’s the way it is and if institutional investors are going to bid anyway, then that’s the action that can be played.

Panera Bread Company (PNRA) has been a powerhouse wealth creator recently and over the long haul. The company’s shares have doubled in value since the beginning of 2011 to their current price of approximately $185.00 per share.

Similar to Chipotle Mexican Grill, Panera Bread could also use another stock split. Considering the market capitalization of both of these enterprises, $17.0 billion and $5.0 billion respectively, they should be trading well over a million shares a day.

It is notoriously difficult to make a consistent buck in the restaurant business, and concepts easily come and go. The recent IPO of Potbelly Corporation (PBPB) hasn’t been successful yet. The company is established with corporate-owned and franchise locations, but comparable growth is tough. Potbelly’s 2013 fourth quarter only saw revenues grow 1.7% to $74.8 million.

Still, an equity market speculator is well served by following the entire group of publicly traded restaurant stocks. Institutional investors love creating price momentum in those companies that are delivering the fastest growth with seemingly little regard for valuation.