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.
Many states are beginning to open indoor dining again. This means there’s potential for growth in the restaurant sector. Expanded takeout and delivery options have even been a boon to some companies, allowing them to reach a broader range of customers.
Investors can benefit from investing in fast food stocks as the restaurant industry rebounds. We’ve rounded up our picks for the best restaurant stocks of 2020.
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 this year.
Now is actually a great time to purchase restaurant stocks as well. Many of these stocks are still very affordable as a result of the market crash that happened in March. However, potential for growth means prices aren’t likely to stay low for too long.
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. What unique approaches are they taking to connect with customers? Competition in the restaurant industry is high. This means innovative brands are the most likely to be successful.
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. The company posted very strong second quarter earnings in 2020. Third quarter earnings were strong, but didn’t quite meet high expectations.
This has resulted in a slight dip in Domino’s Pizza stock prices. With prices slightly lower than average, now is a great time to invest in this growing company. They also currently pay a dividend of $0.78 per share.
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 already has a long history of successful operations. This makes it one of the top restaurant stocks to buy right now.
Yum! Brands (NYSE:YUM)
Yum! Brands is a global fast food company that operates KFC, Taco Bell, Pizza Hut, and The Habit Burger Grill. Like many other food brands, Yum! has struggled recently. Their franchises have had to close or slow their operations globally.
However, Yum! has slowly started to see improvement. A recent report indicates that store sales have started to increase slowly.
Yum! also has a huge international footprint. They currently have franchises in over 150 countries. Their broad reach means they are poised for a rebound when restaurants are able to open at full capacity again.
Since Yum’s brands are quick service restaurants, they also have more opportunities for takeout and delivery. Their business model isn’t affected as significantly as formal sit-down restaurants. 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. Although overall sales were down in the second quarter, digital sales were up more than $1 billion year over year. Although times might be tough now, Yum! Brands offers plenty of long term potential.
Wingstop may be a relatively small when compared to others on this list, but that doesn’t mean you should rule it out. They’ve been one of the best performing restaurant stocks in 2020, although there have been some fluctuations.
Wingstop’s fast casual model has been able to stand up to this year’s challenges. Customers can easily order online for pickup and delivery, minimizing contact with staff.
Wingstop has had an upward trajectory when it comes to sales growth. They’ve also been expanding very rapidly using their franchising model. In fact, Wingstop is planning on opening over 600 new locations in the future.
With plenty of room for growth, Wingstop is an exciting choice for prospective investors. The stock’s valuation has also dropped slightly since its peak over the summer, which means it could be a good time to buy.
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 pandemic. 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. 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, their earnings per share have been incredibly strong, despite all of the challenges in this year’s second quarter.
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.
Coffee shops have been among the worst hit by the pandemic. However, of all coffee chains, Starbucks is arguably the one most poised to return to success.
Starbucks is the most dominant coffee chain in the world. They have over 30,000 locations around the world. Their large presence has made them more accessible during this global shutdown than other coffee shops.
The company also has very strong brand loyalty. 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. China is now one of the first countries to emerge from lockdown, which gives Starbucks an opportunity to get ahead even while business is down elsewhere.
Darden Restaurants (NYSE:DRI)
This sit-down restaurant chain operator has defied the odds this year. They have managed to keep their stock price relatively steady, even as their competitors have dropped and the stock market crashed.
Darden Restaurants owns and operates a portfolio of restaurant chains. The most notable of these are Olive Garden and Longhorn Steakhouse. They also operate upscale niche restaurants like Yard House, Eddie V’s, and Seasons 52.
Olive Garden was able to survive the pandemic with money in the bank. This is due to their robust takeout operation, which was in place before the COVID-19 crisis.
As the rest of Darden’s properties start to open again, following social distancing will prove to be challenging. However, the company’s management of Olive Garden has proven that they have the flexibility to adapt their service. They’re currently focusing on reopening Longhorn Steakhouse and adapting to new restaurant regulations.
Although Darden’s earnings report last quarter was challenging, they’ve still managed to stay ahead of their competitors by quite a ways. Their free cash flow and sales are both much higher than other casual dining operators, which sets them up for financial success in years to come.
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.
This is another popular burger chain that has managed to avoid a crash, even as the stock market dropped in the spring. They’ve managed to keep their earnings relatively steady. They’re also continuing to offer dividends.
One of the biggest advantages that Wendy’s has right now is their strong takeout and drive thru operation. This has helped them keep store sales from dropping even with a shutdown.
It’s hard to know for sure what will happen with Wendy’s stocks in the next few months. We can expect that the restaurant will come out of this year with a reduction in expenses. This is something that the company has already committed to.
Like most restaurant stocks, Wendy’s dropped in March when the stock market crashed. However, they’ve been able to rebound quickly. Shares are currently valued slightly higher than they were before the market crashed.
The restaurant industry may be struggling right now, but there’s still plenty of potential for future growth. Wendy’s is one of the best restaurant stocks to buy right now because they have a stable business model that can adapt to the new regulations.
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. However, over the past few years they’ve dramatically increased their brand awareness
Shake Shack struggled when the pandemic hit and the market crashed. Growth has slowed down significantly. Investors who choose to add Shake Shack stock to their portfolio should think of it as part of a long-term strategy.
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.
Shake Shack’s revenue, earnings per share, and stock prices are down right now. However, their flexibility and brand awareness means they are set up for a rebound.
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.
Both Burger King and Popeyes performed very well in 2019. Although QSR stock dropped in the spring, it has since been on an upward trajectory. Since their restaurants have a history of performing well, we can expect their sales growth to return when regulations are relaxed globally.
In the second quarter, RBI reported strong earnings in line with their estimates. This indicates that they are on their way back to their former success.
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.