Daily Gains Letter

Three Restaurant Stocks Better Than McDonald’s?

By for Daily Gains Letter |

Restaurant StocksThe restaurant sector, including the fast food outlets, continues to reward investors with a good investment opportunity over the past years. The advance in the eateries has been somewhat overdone, as the stock market appears to be willing to price much higher on these stocks.

McDonald’s No Longer the Top Investment?

McDonalds Corporation (NYSE/MCD) was previously the top investment opportunity in the restaurant sector. Over a decade ago, the company recognized the market trend to healthier meals. In response, McDonald’s undertook a major transformation to its menu offering by expanding its menu to healthier choices, such as wraps and salads, to complement its hamburger and fries beginnings.

McDonalds Corporation Chart

Chart courtesy of www.StockCharts.com

Yet McDonald’s is no longer the go-to restaurant stock, as the sector has seen a massive influx of new players offering a wide assortment of meals, from Mexican to Asian, to sandwiches and family sit-down meals. The market is extremely competitive. McDonald’s may still be an aggressive investment opportunity for some, but the company will need to turn things around in order to regain its previous glory.

The catalyst for the rise in restaurant stocks has been the economic renewal, jobs creation, and rising home prices. That means many more restaurants than just McDonald’s are seeing profits—and there are three that just might be a better investment opportunity than McDonald’s.

Chipotle Mexican Grill, Inc.

One of the hottest restaurant stocks at this time is Chipotle Mexican Grill, Inc. (NYSE/CMG), which has a market cap of $21.0 billion. In the past, I have written about how I have been bullish on a stock like this one as a potential investment opportunity since it was trading at the $100.00 level. The stock recently traded as high as $727.97, but has given up some ground since, sitting around $671.00 now.

Chipotle Mexican Grill Chart

Chart courtesy of www.StockCharts.com

Chipotle has been a thorn in the backside of McDonald’s. The freshly prepared Mexican-style meals are made from scratch and offer a more wholesome alternative to the other sellers of wraps, such as McDonald’s and Taco Bell, which is owned by YUM! Brands, Inc. (NYSE/YUM).

The only negative? Chipotle’s higher prices tend to scare off some investors and it may not be in reach for many smaller accounts. An alternative potential investment opportunity would be to play a stock like this one via the use of call options.

Texas Roadhouse, Inc.

Another excellent restaurant stock that is a picture of consistency is family sit-down Texas Roadhouse, Inc. (NASDAQ/TXRH), with a market cap of $2.5 billion. The network comprises more than 440 restaurants spread across 49 states and four countries.

Texas Roadhouse Chart

Chart courtesy of www.StockCharts.com

Texas Roadhouse traded at a new 52-week high of $36.11 on Wednesday after reporting another stellar quarter. The company is all about consistency, reporting higher sequential revenues over the past 12 years, from $159.91 million in 2001 to $1.42 billion in 2013, which makes it a good example of a potential investment opportunity. The positive trend is expected to continue with revenue growth of 10.8% in 2014, followed by 11.2% to $1.75 billion in 2015, according to Thomson Financial. Annual earnings increased in 11 of the past 12 years and are estimated to continue to grow in 2015.

Potbelly Corporation

For speculators who want an aggressive investment opportunity, take a look at Potbelly Corporation (NASDAQ/PBPB), with its market cap of $468 million. The stock surged 13% on Wednesday after reporting strong fourth-quarter results.

Potbelly serves up a broad range of sandwiches, along with secondary items, such as salads, soups, chili, breakfast items, smoothies, and baked goods. This former mom-and-pop store now operates more than 300 company-owned shops in the U.S., along with more than 20 franchisee shops in the U.S. and the Middle East. There are plans for aggressive expansion that will drive

Potbelly Corporation Chart

Chart courtesy of www.StockCharts.com

Potbelly has underperformed versus the S&P 500 with a decline of 31% over the past 52 weeks, compared to a 14.85% gain by the index. This is the kind of stock that could be an interesting investment opportunity on weakness.

Please note that none of the above should be considered buy recommendations; rather, these stocks are meant to be examples of the kinds of companies investors could consider as an alternative to McDonald’s when looking at the restaurant and fast food sector at this time.

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