One group of stocks with continued good potential for capital gains are the restaurant stocks. It doesn’t take much for things to turn up for these stocks, whether it is lower gas prices, a hair more disposable income, or a change in sentiment among consumers to spend on food.
Restaurant stocks have been, and will continue to be, solid cyclical stocks in which to speculate. Timing and the right concepts are, of course, absolutely everything.
Typically a successful, growing restaurant chain will be between expensive and overpriced on the stock market. But that’s the way they tend to be until the growth ends; it’s just the way it is, as institutional investors love to speculate in this sector.
Five Restaurant Stocks to Watch
One company that I believe still has excellent growth prospects for the rest of this decade is Fiesta Restaurant Group, Inc. (FRGI), which operates the Pollo Tropical and Taco Cabana branded chains.
This stock could use a bit more liquidity, which is why it can really move on news. The next big catalyst for this stock is the company’s fourth-quarter and full-year financial results, due February 19. If the numbers are good, this stock should experience continued upward price momentum. If not, the opposite is likely. The company’s three-year stock chart is featured below.
Chart courtesy of www.StockCharts.com
Chipotle Mexican Grill, Inc. (CMG) recently disappointed the Street with sales growth that came in under expectations and higher food costs. But this is still a growing brand and the concept is well proven.
Starbucks Corporation (SBUX) has proven to be a decent buy on major price retrenchments. The stock is fully valued, which it tends to be. The company’s fiscal first quarter of 2015, which just ended, saw record sales results and non-GAAP earnings per share.
Revenues in fiscal 2015 are expected to grow between 16% and 18% comparatively. There is plenty of room for a dividend increase with this company. It bought back close to three million common shares in its most recent quarter, with 13 million left authorized.
El Pollo Loco Holdings, Inc. (LOCO) is a chain we’ve looked at before in these pages. (See “Five Hot Restaurant Stocks for 2015.”) This stock is highly liquid, very tradable, and will move on news regardless of valuation.
Zoe’s Kitchen, Inc. (ZOES) is a growth story with lots of development potential. The company’s fourth-quarter numbers should be out soon. In January, the company updated its investor presentation (for roadshows and retail investors). Of all its restaurant locations, 98% are company-owned, which I like because it can control everything as the concept develops.
Pros and Cons of Restaurant Stocks for Investors
All restaurant chains/concepts experience growth difficulties, supply chain issues, and expense fluctuations, mostly related to food costs. As a sector, though, it still offers double-digit growth in an otherwise slow-growth environment. And most of these stocks are liquid, which offers good action for traders.
Restaurant businesses are providing a bit of intelligence regarding the economy, suggesting consumers are spending a little more than in previous years. This sector has staying power given current economic data. It’s a worthy space in which to speculate.