Sample These Three Restaurant Chains

 | May 22, 2014 | 4:30 PM EDT
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Depending on what is happening in the industry, restaurants go in and out of the news. Right now, the planned sale of Darden Restaurants' (DRI) Red Lobster chain to the private equity firm Golden Gate Capital for $2.1 billion has put the industry back in the public spotlight.

My guru investment strategies are also putting the spotlight on restaurants. Several restaurant companies earn top grades from these, which are computerized strategies I modeled from those used by some of Wall Street's most savvy investors.

It's unlikely that Darden makes any investor's mouth water, but Buffalo Wild Wings (BWLD) does. This franchisor operates more than 1,000 sports bars,  featuring, naturally, Buffalo-style chicken wings. The company earns a nod from my Martin Zweig-based strategy. The company has an attractive P/E ratio, which cannot be more than 43 (Buffalo Wild Wings' is 31.77) and its sales growth is increasing. In addition, earnings per share (EPS) for the current quarter are greater than the results from the same quarter a year ago, earnings have increased for each of the past five years and debt as a percent of equity is quite low (7.09%).

Panera Bread's (PNRA) focus on bakery products has helped the restaurant chain rise above others. In addition to bread, the company serves pasta, salads, sandwiches and soups. The company operates 1,800 bakery/cafes in the U.S.

Using my Peter Lynch strategy, I determined that I like this company's attractive 0.93 P/E/G ratio, which is price-to-earnings relative to growth. It is a measure of how much the investor is paying for growth. A P/E/G of up to 1.0 is acceptable. Another appealing variable is that the company holds absolutely no debt.

Another bakery-restaurant combination that the Lynch strategy has me sweet on is The Cheesecake Factory (CAKE). Known for its extensive menus (which include 200 items), the company operates 181 full-service restaurants. The Cheesecake Factory's P/E/G is 0.95 and its debt-to-equity is almost as desirable as Panera's 4.97%.

These three profitable restaurant chains are all well established with strong brand recognition and track records of success. They promise to be tasty investments in the coming years.

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