In one of my all-time favorite episodes of Seinfeld, down-and-out George Costanza decides to try something different, namely the opposite of what he'd normally do in a given situation, which ends up being life-changing in a positive way.
I'm not sure whether we've yet entered a George Costanza market, where up is down, down is up and where it pays to do the opposite of what you normally would do, but we may be getting there. One of the current struggles that is Costanza-like for investors is watching oil prices being decimated, which is good for their wallets, but has not been so good for their portfolios.
In a market like this, what would George do?
Meanwhile, I continue to be surprised by the performance of restaurant names. While the S&P 500, Russell 2000 and Russell Microcap Indices are down 6.8%, 11.1% and 12.4%, respectively, year to date, restaurant stocks are faring much better. A basket of 64 restaurant stocks, from micro- to mid- to large-cap, is down an average of just 2.4% year to date.
The "big five" by market cap -- McDonald's (MCD, +4.9% YTD), Starbucks (SBUX, +1.4%), Yum Brands (YUM, -0.4%), Chipotle (CMG, -0.9%), and Darden (DRI, -1.6%) -- are actually up an average of 0.7%. If you look at the next 15 names by market cap, most are in positive territory in 2016. The exceptions include Papa John's (PZZA, -17.2%), Dave & Buster's (PLAY, -12.2%), Buffalo Wild Wings (BWLD, -6%), Dunkin' (DNKN, -4.1%) and Wendy's (WEN, -3.7%). My all-time favorite chain, Cracker Barrel (CBRL, +5.5%), which I have exposure to through Biglari Holdings (BH), is also looking strong. (Starbucks is part of TheStreet's Action Alerts PLUS portfolio.)
Even the newbies, which have been overpriced in my view, including Shake Shack (SHAK, -8.5%) and one of my favorites, Zoe's (ZOES, -0.3%), are holding up fairly well, all things considered. Noodles (NDLS, +30%), which has not done much since going public in 2013, is one of the top performers for 2016. Surprisingly, the top performer year to date is none other than casual-dining chain Cosi (COSI, +50%), which has struggled in its history to turn a profit. However, at this point, the stock is trading more like an option on the company surviving.
I'm not 100% sure why we are seeing what may be perceived as a "flight to quality" in this market toward restaurants. Perhaps it's the perceived impact of lower oil prices, which bode well for food transportation costs as well as consumers. It's cheaper for them to drive, and perhaps it is expected that there will be more discretionary income in their wallets to spend for meals outside the home.
I also believe, anecdotally, that there's been a new attitude toward dining out since the tragic events of Sept. 11, 2001. Despite the recession we experienced around that time, restaurants did extremely well. My theory, and it is one that I believe to this day, is that consumers became more willing to spend on experiences outside the home, dining being one of them, than they had in the past. Sort of a "life is too short" mentality, "let's go out for dinner."
That being said, the bull run in restaurants, which was reignited following the 2008 market debacle, can't go on forever. At least that's my theory, and one I predicted for 2016. So far, however, I could not have been more wrong on that issue.