In 2020, even the best restaurant stocks took a big hit as a result of the COVID-19 pandemic.
With most states limiting dine-in operations, fast food companies had to readjust their business model.
Many pivoted by expanding their takeout and delivery operations. Expanded takeout and delivery options have even been a boon to some companies, allowing them to reach a broader range of customers.
However, indoor dining restrictions have been lifted in many places around the world as a result of increasing vaccination rates.
While many restaurants are still struggling with labor shortages, things are finally looking up in this industry.
Investors can benefit from adding fast food stocks to their portfolio as the restaurant industry rebounds.
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How to Choose The Best Restaurant Stocks
Restaurants are a great investment option for many reasons.
We all need to eat, and restaurants often serve as an essential gathering place for their communities.
This makes them relatively resilient, despite the unique challenges that they’ve faced over the past year and a half.
When considering restaurant stocks, you’ll need to look at their business model as a whole.
Fast casual dining establishments have found success by balancing the convenience of fast food with the quality and ambiance of a more formal restaurant.
With large companies, you should look at their store sales growth and their franchise system.
Competition in the restaurant industry is high, and companies should be looking for unique ways to connect with customers.
Restaurant stocks have rebounded over the past year, but there are still some concerns about COVID-19 with the Delta variant spreading.
Restaurants that can easily transition between dine-in and takeout services will likely perform the best over the next few years as the world works to get COVID-19 under control.
Best Fast Food Stocks
Domino’s Pizza (NYSE:DPZ)
Domino’s Pizza is has a business model that’s perfectly set up to weather a global pandemic.
Domino’s offers a huge network of stores both domestically and internationally.
Some of these stores are run by the company, while others are franchises.
While other restaurant brands started closing stores, Domino’s Pizza has actually been opening new ones globally in markets that have already shown success.
Although Domino’s has faced higher costs as a result of the pandemic, their sales have stayed strong.
Part of this is due to a robust takeout and delivery model with contactless options.
Domino’s stock has been on a strong upward trajectory since March. They’ve consistently been one of the best restaurant stocks to buy for the last few years.
Papa John’s Int’l Inc. (NASDAQ: PZZA)
Papa John’s is one of America’s largest casual pizza chains, with over 3,000 locations across the US. They also have locations in Europe, Latin America, and India.
This chain has done very well in 2020 and the first half of 2021 despite all of the challenges facing the restaurant industry.
Their stock price has been on a steady upward trajectory since March.
One of the reasons why Papa John’s did so well during the pandemic was because of their robust digital ordering platform, which has been in place for nearly two decades.
This made it easy for customers to order pizzas while still adhering to COVID-19 restrictions.
Both sales and earnings per share numbers were up in 2020 as a result.
Even though many places are lifting restrictions, consumers have gotten used to the convenience of online ordering and delivery and will likely continue to eat their favorite pizzas.
Yum! Brands (NYSE:YUM)
Yum! Brands is a global fast food company that operates KFC, Taco Bell, Pizza Hut, and The Habit Burger Grill.
Yum! also has a huge international footprint. They currently have franchises in over 150 countries.
This has helped them rebound as indoor dining is starting to open in many countries. Their business model isn’t affected as significantly as formal sit-down restaurants.
Since Yum’s brands are quick service restaurants, they also have more opportunities for takeout and delivery.
They have even been converting Pizza Hut entirely to takeout. This allows the restaurant to run much more efficiently.
As a result of the pandemic, Yum! Brands has expanded their digital services. They expanded delivery and contactless takeout with positive results.
This stock has been growing slowly since the beginning of the year. They also continue to offer 1.76 percent dividend yield.
This is a top pick for any investor interested in the restaurant industry.Looking for more stock picks? Get a new trade every week for free with Trade Ideas. Trade Ideas sends you a new pick every single week along with the reasoning on why it could be ready to break out. Sign up for free right here.
Best Restaurant Stocks: Fast Casual
Chipotle Mexican Grill (NYSE:CMG)
Chipotle Mexican Grill was one of the earliest fast casual brands to hit the market, and they’re still very successful despite the last year’s shutdowns.
Of course, they’re known for their delicious fresh Mexican food, but there are plenty of other reasons why this chain has managed to stay successful.
Chipotle’s business model was highly adaptable to the current situation.
They have a very successful app and rewards program. Additionally, they have started installing drive-thru stations at many of their restaurants.
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Recently, they launched a partnership with Uber Eats to offer delivery.
Compared with many other restaurant stocks, Chipotle’s stock is currently quite expensive.
However, the company continues to post strong earnings reports that intrigue investors despite the high price tag.
We can expect Chipotle Mexican Grill to continue delivering in the coming years.
They have strong management and a product that consumers love.
With their current performance, they’re one of the best stocks in the restaurant industry.
Starbucks is the most dominant coffee chain in the world. They have over 30,000 locations around the world.
Starbucks has extremely loyal customers, which helped them survive the challenges of the pandemic.
Consumers have favorite Starbucks drinks and products that are part of their daily routine.
As many countries around the world start returning to normalcy, it’s likely that Starbucks’s earnings will increase.
Although they may not offer delivery, Starbucks has a strong digital presence.
They have an app and rewards program that is very popular among consumers.
They’re also testing a new Starbucks Pickup model, which would require customers to order online ahead of time.
Starbucks is also putting more energy into the Chinese market. Even before the COVID crisis, the coffee company had a plan to open hundreds of stores in China.
Chuy’s Holdings (NASDAQ: CHUY)
Chuy’s is a Tex-Mex restaurant based in Austin, Texas. They currently have locations in over 19 states.
Chuy’s is known for being a very affordable destination for a full-service meal. This makes them appealing for families, students, or anyone on a budget.
Another factor that makes Chuy’s unique is their atmosphere. Each location has its own unique ambiance that makes it feel more like a local gem and less like a chain restaurant.
After struggling during 2020 due to shutdowns across the country, Chuy’s stock has risen over 140 percent since last summer.
Their sales improved dramatically in the first quarter and they’ve managed to stay out of debt despite the challenges of last year.
They have also continued to offer curbside pickup and delivery options.
Chuy’s appears to be a strong reopening play for investors.
Cracker Barrel (NASDAQ: CBRL)
Cracker Barrel is a restaurant chain based in Tennessee. They serve traditional Southern comfort food.
Cracker Barrel currently has locations in 45 states across the country.
This company’s most recent earnings report was exciting for investors, with huge year-over-year income and revenue growth.
They also have a relatively low price-to-earnings ratio, making this stock an affordable buy given their most recent earnings.
On top of that, they pay a 2.95 percent dividend yield.
While Cracker Barrel has definitely benefited from indoor dining reopening across the country, they aren’t resting on their laurels.
They’re taking steps to keep costs down, and they’re also continuing to expand their takeout and delivery options to meet consumer demand.
Cracker Barrel is also known for consistently updating their menu, which helps draw repeat customers back in.
All of these factors have helped Cracker Barrel rebound after a difficult year.
Kura Sushi (NASDAQ: KRUS)
Kura Sushi is a sushi bar with over 30 locations across the US.
They use a trendy conveyer belt system to deliver sushi and other Japanese dishes to diners.
After a year of steady growth, this stock popped in the middle of July.
This is because of a very exciting earnings report, which showed dramatic year-over-year revenue growth.
They also blew consensus estimates out of the water.
The company is expecting this growth to continue as consumers get more comfortable visiting restaurants in person.
This is an exciting small restaurant chain to invest in right now.
Best Burger Stocks
McDonald’s is one of the world’s most recognizable fast food chains.
Although this year has been tough, McDonald’s is a restaurant chain that’s set up to handle the markets’ fluctuations.
McDonald’s has been able to focus on drive-thru operations.
They also launched a streamlined menu, which has made the restaurant much easier to run.
They also still have a good financial standing. McDonald’s has a strong balance of income and expenses to prevent future debt.
McDonald’s is one of just 30 stocks on the Dow Jones Industrial average. It’s also the only one of these restaurant stocks on the Dow.
The company’s long history of success makes them more likely to rebound than less established restaurants.
Shake Shack (NYSE:SHAK)
Shake Shack is a popular burger restaurant that is quickly expanding globally.
They are known for combining classic dishes with a sleek, fun atmosphere.
The company started as a hot dog cart in Madison Square Park in New York City. Over the past few years, they’ve dramatically increased their brand awareness.
Shake Shack is currently expanding, adding new locations overseas as well as domestically. Many of their new locations are in high-traffic urban areas.
To cope with new restaurant regulations, Shake Shack adjusted to a takeout and delivery model.
Customers can now place their orders via an app or website. They’ve also partnered with GrubHub to offer delivery.
While Shake Shack’s stock price has improved over the last few months, it is still quite volatile.
Their stock has dropped slightly in July, but this is just the beginning for this burger chain.
As the company expands both domestically and overseas, there’s plenty of potential for growth. Investors should expect this stock to be a long-term play.
Restaurant Brands International (NYSE:QSR)
Restaurant Brands International is a multinational restaurant company best known for owning Burger King.
They formed in 2015 as a merger between Burger King and Tim Horton’s, which is a Canadian coffee chain. RBI also owns Popeyes Louisiana Kitchen.
One of the things that makes RBI an appealing buy is their dividend yield, which currently sits at 3.45 percent.
This stock has seen significantly growth over the past year, but has dropped slightly after peaking in June.
However, this stock still has a lot to offer. In particular, Popeyes offers a lot of potential. Consumers have been very enthusiastic about their chicken sandwiches.
They’ve also recently added a membership program to encourage customer loyalty.
Best Restaurant Stocks: Final Thoughts
The restaurant industry may be struggling right now, but there are still stocks in this sector worth buying.
The best restaurant stocks are the ones that have been able to be flexible and adapt to new regulations.
As restaurants slowly start to open for dine-in again, keep an eye out for a slow rebound in this sector.
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