Right now, despite the volatile political climate, at least one industry is doing well and is likely to continue along the path of solid performance: restaurants. I can tell the industry is strong because several of its members earn high grades from my guru strategies.
Based on how well-known Wall Street gurus invest, I use these strategies to identify worthy investment opportunities, and restaurants are really cooking at the moment.
Three are favored by my Peter Lynch-based strategy, including Red Robin Gourmet Burgers (RRGB) , Ruth's Hospitality Group (RUTH) and Fiesta Restaurant Group (FRGI) . (Famed investor Peter Lynch managed Fidelity's Magellan Fund from 1977-1990.)
Red Robin operates a national chain of casual dining establishments focused on hamburgers. It owns 429 locations, and an additional 99 are franchised. Ruth's is a chain of over 100 upscale steakhouses. Fiesta FRGI has two fast-casual restaurants concepts: Pollo Tropical (161 company owned locations, 36 franchised) and Taco Cabana (162 company owned locations, 6 franchised).
The Lynch strategy highlights the PEG ratio, which is price-to-earnings relative to growth, a measure of how much growth is costing the investor given the current stock price. Up to 1.0 is acceptable under this strategy.
All of three companies have desirable PEG ratios. Red Robin's is a very strong 0.48, while Ruth's' and Fiesta's are also excellent at 0.83 and 0.61, respectively. These are all well-priced stocks.
Another restaurant group worth paying attention to is Cracker Barrel Old Country Store (CBRL) , which has 636 locations in 42 states. It specializes in home-style country cooking along with retail stores that are part of its restaurants.
My strategy based on James P. O'Shaughnessy's writings likes Cracker Barrel because of the company's sizable market cap, earnings per share that have increased in each of the past five years and low price-to-sales ratio, an indicator of good value. Among all the stocks that meet these criteria, this strategy picks the top-50 based on relative strength, which relates to how well the shares have performed in the last year relative to the market. Cracker Barrel is in this top-50 group.
People are eating out and these companies are well positioned to benefit from solid demand for restaurant services. Now is a good time to take a bite of these stocks.