I'm trying to stay optimistic about the market's ability to move higher from here, but I wasn't happy to see a higher-volume decline for the S&P 500 on Monday, nor was I happy about the Nasdaq's performance on Tuesday. Sellers came into the index late in the day, and the Nasdaq finished near its session low on higher volume. Despite a small gain for the index, the session had the feel of distribution.
Early Wednesday, a disappointing reading from ADP fueled more concerns about a weak jobs report on Friday. ADP said that private-sector jobs rose 119,000 in April, well below the consensus estimate of 170,000.
Despite renewed uncertainty in the broad market, the number of healthy stock charts in the market easily has the upper hand over unhealthy ones.
Restaurant stocks were in focus Tuesday. The group got a lift after the private-equity firm Centerbridge Partners announced plans to take P.F. Chang's China Bistro (PFCB) private for $1.1 billion. That fueled speculation that more private-equity interest in the group could appear down the line.
Investors have gotten used to seeing consistently strong price performance from high-quality restaurant names such as Chipotle Mexican Grill (CMG), Buffalo Wild Wings (BWLD) and Panera Bread (PNRA), but sellers have been in all three stocks lately. Institutional selling has been the most pronounced in Chipotle and Panera, but big sellers were definitely in Buffalo Wild Wings on April 24 after the company reported earnings.
Despite the Nasdaq's shaky performance on Tuesday, the restaurant group served up a couple of technical breakouts, but not from the usual suspects.
Small-cap Texas Roadhouse (TXRH) broke out of a base in heavy volume, rising 7.6% to $18.56. It closed in the bottom half of its range Tuesday as the Nasdaq weakened late. Volume totaled 3.1 million shares, well above the stock's 50-day average volume of 887,000. It's always good to see volume expansion when a stock stages a technical breakout. It means that big investors are buying.
It's not a super-fast grower in the group, but the company has plenty of positive qualities. Late Monday, it reported first-quarter profit of $0.31 a share, up 15% from a year ago. Sales growth accelerated for the second straight quarter, rising 14% to $324.9 million. For 2012, the company forecast same-store sales growth of 4-5%.
The Kentucky-based casual restaurant chain operates more than 370 restaurants in the U.S. It expects to open 25 restaurants this year and another 25 in 2013.
Texas Roadhouse shows steady growth in recent quarters, and its valuation isn't stretched at 21x trailing earnings and 17x forward earnings. This year, earnings are expected to rise 8% to $0.95 a share. Growth is expected to accelerate in 2012, rising 16% to $1.10 a share.
For a speculative restaurant play, Texas Roadhouse is worth a look here because of bullish technicals and a track record of consistent growth.
Meanwhile, I'm not as keen on Cheesecake Factory (CAKE), even though it also delivered a breakout on Tuesday in heavy volume. Shares jumped 3.3% to $32.55. There was heightened interest here as well, as volume totaled 3 million shares. Cheesecake Factory normally trades about 1.27 million shares a day.
The company operates 171 casual dining restaurants in the U.S., including 157 namesake restaurants and 13 Grand Lux Cafe locations.
Growth prospects are also decent at Cheesecake Factory, but the company has delivered low-single-digit sales growth in three out of the past four quarters -- a little light for my taste.
Last week, the company reported first-quarter profit of $0.37 a share, up 9% from a year ago. Sales rose 4% to $435.8 million, a bit shy of the consensus estimate of $439.7 million. Same-store sales rose 2.4% in the quarter.
Full-year profit is seen growing 15% this year to $1.88 a share and 13% in 2013 to $2.13 a share.
When all's said and done, Texas Roadhouse gets my vote for now due to a more consistent track of growth. Plus, its breakout on Tuesday was stronger than Cheesecake Factory's.