Chipotle Mexican Grill, Inc. (NYSE/CMG) is one of my favorite places to grab a quick bite to eat. Yet despite some stellar growth, the stock broke below $300.00 on October 2 and has since plummeted to the $230.00 level, down nearly 50% since trading at a 52-week high of $442.40 in April. Fresh concerns regarding future growth and multiple downgrades from analysts have hurt the stock, and there’s speculation of pending price increases to the menu, according to my stock analysis. Trading at 23X 2013 earnings, Chipotle is relatively more expensive than McDonalds Corporation (NYSE/MCD) and YUM! Brands, Inc. (NYSE/YUM).
My stock analysis is that there are strong showings in the restaurant sector, especially in the fast food area. A staggering 30% of the 96,000 new jobs generated in August were driven by the food services sector, according to data from the Labor Department.
The Bloomberg U.S. Quick Service Restaurant Index, which includes YUM! and McDonalds, is up nearly 12% for the year to October 24.
Whether it’s eating out or cooking at home, the investment opportunity for food-related stocks is excellent, especially with the fast food stocks, based on my stock analysis.
McDonalds is at the top of the fast food chain, according to my stock analysis, with over 33,000 restaurants in 119 countries and sizzling growth in China. My stock analysis is that the stock has been a top performer in the restaurant sector over the past decade after the company made a dramatic shift in its menu offerings to include healthy meals and to broaden its target market. My stock analysis shows that the strategy has worked, vaulting McDonalds to the top of the fast food chain and leaving Burger King Worldwide, Inc. (NYSE/BKW) and The Wendys Company (NASDAQ/WEN) behind.
Chart courtesy of www.StockCharts.com.
If you are looking for U.S. restaurant stocks that have a dominant position not only domestically but also in China—the fastest-growing market for fast foods—there are two major stocks that deserve a look as potential additions to your portfolio, based on my stock analysis. (I also like the risk-reward in the Chinese real estate market, which you can read about in “Why You Need to Think Long-term with Chinese Real Estate Stocks.”)
I already mentioned McDonalds. The company said that it has plans to have 2,000 restaurants in place in China by 2013. You cannot go wrong with McDonalds.
My stock analysis is that the top restaurant stock in China is YUM!—the operator of well-known fast food outlets, such as Taco Bell, Kentucky Fried Chicken (KFC), and Pizza Hut.
The company has close to 4,500 restaurants spread across over 700 cities in China, adding a record 656 in 2011 and planning to add another 700 this year, according to the company. (Source: YUM! Brands, last accessed October 25, 2012.) In 2011, YUM! generated $908 million in operating profits from its Chinese outlets. At present, about 40% of the company’s profits are generated in the country.
Chart courtesy of www.StockCharts.com
YUM! opened its first KFC in China in 1987 and recently opened its 4,000th KFC in the country. The growth of KFC has been amazing, considering that the U.S. has about 5,200 KFCs; it looks like it will be just a matter of time until there will be more KFCs in China.
The Pizza Hut brand was launched in 1990 and is growing in China with about 630 restaurants in over 120 cities.
In my stock analysis, China is on its way to becoming the fast food king of the world, and you can’t go wrong going with McDonalds and YUM!