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4 Restaurant Stocks to Buy in 2020

Larry Davidson - March 03, 2020

The food services industry is vast and diverse. Everyone needs to eat, so these companies have huge addressable markets. The best restaurant stocks have great service, tasty food, and a loyal customer base. Companies that operate in the restaurant space include full-service eateries, fast food chains, diners, and more.

Restaurant stocks suffered through a downturn in 2016 and much of 2017.  However, the industry has performed well since the Trump tax cuts went into effect. The restaurant industry is thriving under a historically strong U.S. consumer, and the recent growth in the sector suggests that it’s well along on its path of recovery.

TDn2K’S Restaurant Industry Snapshot revealed that growth was healthy for the industry last year and momentum is likely to continue in 2019.

These days, the restaurant industry is getting its best revenue growth through digital ordering options and delivery sales. Smartphones changed the landscape of the business over the past few years. Some analysts argue that 25% of all restaurant sales will be generated from online and delivery orders over the next four years. That’s roughly a $200 billion chunk of an industry that’s worth $800 billion.

Many restaurants are altering their value proposition to growing social trends like sustainability. The companies that incorporate cutting-edge digital innovations into their business model could grow faster than comparable rivals.

Here are four stocks that will likely outperform the sector.

restaurant stocks
McDonald’s has an international presence with a significant footprint in China, one of the world’s fastest-growing international markets.

McDonald’s (NYSE: MCD)

Known affectionately as Mickey Dee’s, McDonald’s is the world’s biggest food-service retailer. It has over 37,000 locations catering to an estimated 69 million customers daily in more than 100 countries. The stock delivered stellar earnings over the last few years, including 16 consecutive quarterly earnings beats. Meanwhile, shares are up 57% over the same period. McDonald’s has a proven track record for stability and industry-leading innovation.

McDonald’s global comparable sales growth has been positive for 13 consecutive quarters. In the last quarter, comp sales increased 4.2% globally to beat consensus expectations of 3.6%. Interestingly, much of McDonald’s recent growth comes from its revamped menu, which focuses on healthy eating and value prices. These menu changes highlight the agility of McDonald’s management and prove that the chain can make proactive decisions to maintain its competitive advantages.

Domino’s Pizza Inc.(NYSE: DPZ)

Domino’s Pizza Inc is one of the most popular pizza delivery and take-out restaurant chains in the world. Delivery service is a foundational part of its business model. The company has proven its resilience year after year, and its long-term growth narrative is still intact.

In its fiscal first-quarter earnings report. The company posted significant improvements across several areas of its business. Sales jumped 8% last quarter, marking a 4% gain from last quarter’s totals. Its franchise business model helped the company increase operating margins from 38% from 31%. The company plans to drive even more sales growth by expanding on its existing locations, but its long-term focus is penetrating deeper into the U.S. and international markets.

fast food stocks
Chipotle added carne asada to its menu in 2019 and the new dish helped fuel excellent sales growth last year.

Chipotle Mexican Grill(NYSE: CMG)

Known for its high-quality food, Chipotle Mexican Grill is a favorite destination for many diners. The company operates more than 2,400 fast-casual Mexican restaurants that feature freshly made burritos, tacos, salads, and more.

Chipotle’s average unit volumes are much higher than its competitors. In Q3 2018, Chipotle reported nine-month revenue growth of 9% while comp-store growth came in at 3.3%.

Former Taco Bell CEO Brian Niccol came on board in 2018, and his leadership helped turn the company into a perennial winner. Chipotle has been a Wall Street favorite for a few years now, but this company isn’t satisfied just yet. It plans to add between 140 and 160 new stores in 2019.

Starbucks Corp.(NASDAQ: SBUX)

Starbucks Corp. is the world’s leading marketer and retailer of specialty coffee worldwide. Starbucks cafes sell a variety of coffee and tea beverages, along with food and other beverages. The firm also sells consumer products, like packaged coffee and drinkware.

Starbucks also licenses its trademarks through grocery stores, food service companies, and other retailers. Within 47 years, Starbucks has grown from a single store into an $80 billion giant. It was named as one of the world’s most innovative companies in 2018.

Final Words

The four restaurant stocks profiled here have successfully revamped their menu, service, messaging, and physical store design. They’ve also adopted the use of consumer-facing technology to appeal to their consumer preferences. People will always eat, and they’ll spend more money on better food as their income increases. Buying restaurant stocks is one of the smartest ways to play the historically-strong U.S. consumer, and these companies are the best around. For more hot stock picks, click here to sign up for the Stock Dork Cheat Sheet.

Larry D. is one of the most experienced writers at the Dork. His expert insights into the individual stocks have made small fortunes for some of his readers and profitable trades for many more. Best known for his work with under-the-radar growth stocks, Larry has been picking winners for over 30 years.

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