Casual Dining and Quick Service Stocks: Comfort Food For Jittery Investors

The domestic fast food and casual dining sector is considered defensive, as lower-priced meals are not easily impacted by economic swings. Several leading stock experts and contributors to MoneyShow.com order up some favorite picks in the restaurant sector. Adam Mayers, Internet Wealth Builder McDonald's Corp. has more than 37,000 outlets in 120 countries, of which 44% are in Asia, notably China and South Korea, and in other high-growth countries like Poland and Russia. Although best known for its hamburgers, McDonald's serves a wide variety of food which it adapts to local needs and tastes. In coffee-crazy Australia, McDonald's serves espresso and cappuccino with a robust 'flat white' as its mainstay brew. In India, the flagship sandwich is the Maharaja Big Mac, a meatless vegetarian (or chicken) version of the North American mainstay. The chain is introducing digital ordering kiosks in Canada and the U.S., along with mobile ordering and wider pay and pickup services. This replicates what works overseas. Deliveries are now a $3-billion business. McDonald's restaurants in Asia and the Middle East have offered delivery for many years, but the general roll out follows a successful 2017 test in Florida. This year, more than 10,000 of its restaurants offer delivery, with UberEats as its delivery partner. McDonald's is also a dividend aristocrat. It has raised its dividend for 43 years in a row, most recently in November. The payment increased 14.9% to $1.16 per quarter ($4.64 per year). The stock yields 2.35% at current prices. The shares trade at 25.11 times McDonald's projected 2019 earnings. That is high, but acceptable given the company's dominant position and prospects. We rate the stock a buy. Hilary Kramer, GameChangers Texas Roadhouse, Inc. was founded in 1993 when founder Kent Taylor, who is the company's current CEO and chairman, opened the company's first restaurant in Clarksville, Ind. His vision of a fun, family-centered steakhouse with affordable prices proved to be a good one, as the company now operates 582 restaurants in 49 states and in nine countries. The restaurants reflect a rustic southwest theme including jukeboxes that play country music hits. The firm's 25 Bubba 33 restaurants is a concept that was started by the company earlier in the decade. It is a family-friendly sports bar restaurant, which offers pizza, burgers and craft beers. The restaurants feature walls lined with televisions playing sports events and music videos. Other parts of the walls are decorated with sports jerseys, neon signs and other local flair. Strong consumer acceptance of the company's value-oriented strategy has driven growth for TXRH. From 2014 through 2018, revenues increased from $1.56 billion to $2.43 billion, or registered an annual average increase of 11.27% per year. First-quarter results were disappointing. Nevertheless, I continue to like the stock. Sales growth for the company remains strong, and as long as the company can continue the top-line growth, aided by a recent price hike, increased labor costs should be offset over time. A realistic EPS estimate for 2019 is now $2.15, compared to previous estimates of $2.47 and $2.20 last year. However, I look for EPS to bounce back to $2.50 in 2020. This level of earnings should support my $70 target. The stock is a buy below $57 Bernie Schaeffer, Schaeffer's Investment Research Restaurant stock Dine Brands Global, Inc. sports a 33% lead in 2019, and since a late-February peak, has consolidated to form a bullish pennant pattern. Plus, the shares have found support at their 200-day moving average, a trend line that coincides with the $84 price level. With this dual layer of support in place, we are recommending a new long position. A short squeeze could fuel additional gains, with a healthy 10.5% of the stock's total available float sold short. At Dine Brands average pace of trading, it would take shorts nearly a week to buy back their bearish bets. Plus, the stock's gamma-weighted Schaeffer's put/call open interest ratio is perched at a top-heavy 1.85, indicating near-the-money puts outweigh calls among options in the front three-months' series. This could buoy the shares, as the hedges related to these bets unwind. Traders should target a move up to $105, with a stop below $82. Restaurant stock Dave & Buster's Entertainment, Inc. is up 33% in 2019, thanks in part to an early April earnings-induced bull gap. With the $56 level emerging as support and amid a bullish flag breakout, we are recommending a new long position on PLAY. The shares are ripe for a short squeeze. Short interest increased by 30% in the two most recent reporting periods to 7.03 million shares, the most since February 2018. This accounts for 19% of the stock's total available float. At the stock's average pace of trading, it would take shorts seven days to buy back their bearish bets, which is an ample amount of buying power that could fuel a push higher. Mike Larson, Safe Money Report Restaurant Brands International Inc. is a Toronto-based company that owns, and operates and franchises the Tim Hortons, Burger King and Popeyes chains of quick service restaurants - or what we used to call fast food. Together, the three brands have more than 25,700 locations in 100 countries. Those outlets generated a cumulative $5.4 billion in sales and $1.24 billion in adjusted profit in 2018. Meanwhile, Restaurant Brands has taken other steps to boost results recently. * In January, it named Jose Cil, an 18-year veteran of the Burger King division, as CEO. At the same time, the company revealed that same-store sales growth was accelerating at Tim Hortons and Burger King. The news sent QSR shares up almost 10% on the day. * In February, QSR opened its first Chinese location in Shanghai. The move is part of a plan to eventually expand to 1,500 restaurants in China over the next decade. * In March, it unveiled a new Tims Rewards loyalty program. It's designed to encourage repeat business by offering various perks and resembles the highly successful program offered by Starbucks. * Finally, in April, the company started rolling out the plant-based Impossible Whopper in 59 St. Louis-area locations. To put the icing on the cake ... or tomato on the burger, if you prefer ... QSR raised its quarterly dividend another 5 cents to 50 cents earlier this year. That's more than double what the company was paying at the beginning of 2018, and it works out to an indicated yield of around 3%. The stock also hasn't earned anything less than a Weiss Rating buy rating since December 2017. And it goes without saying that lower-priced, convenience-oriented chains like Restaurant Brands International should fare better than higher-end restaurants if I'm right about a slowing economy. Mike Cintolo, Cabot Growth Investor The turnaround story at Chipotle Mexican Grill, Inc. is very much intact--analysts have bumped up this year's earnings estimate from $12.55 per share to $13.03 (up 44% from a year ago), while 2020's figure has risen $0.84 to $16.75 (up 29%). Based on both the fundamentals (accelerating revenue and same-store sales growth, buoyant margins, a steady store-expansion plan and beefy earnings estimates), and chart (the lack of any pullback at all from January through early April), we continue to view the stock's big run off the market bottom as an initial kickoff to a longer advance. The trick, as with so many stocks, is the near term, and whether a deeper correction and consolidation is due. Barring some hugely abnormal action, we're aiming to give the stock some room to maneuver. After a great multi-month run, this stock is due for a correction and consolidation of a few weeks or longer. If the stock dips decisively below its recent low ($660 or so), we'll likely move to hold in anticipation of a longer rest period. If you own some, we advise sitting tight; if you want in, we're OK grabbing shares around here or on dips.

Casual Dining and Quick Service Stocks: Comfort Food For Jittery Investors

In times of market turmoil, restaurant stocks can provide a safe haven.

Columnist Conversation

Here Is Your Pullback in ORCL

Rolled Up Google, Morgan Stanley

Webinar Time After the Close -- Don't Miss This

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.