Best Restaurant Stocks

With a shift to dining out, restaurant stocks have been gaining altitude, and their future looks bright, too. In 2019, consumers spent more of their budget on dining out, surpassing groceries — marking the dawn of a disruptive shift that favors restaurant companies, chains and stocks at large. This huge industry is expected to grow even bigger in future with the proliferation of home food delivery, especially in the wake of the COVID-19 pandemic.

You still have a menu of options to choose from in the restaurant industry — both newly launched chains and well-established global giants. Today, Benzinga looks at the best restaurant stocks to add to your portfolio for an extra layer of diversification and potential.

Quick Look: The Best Restaurant Stocks

• Brinker International Inc
• Bloomin Brands, Inc.
• McDonald's
• Yum Brands, Inc.
• Jack In The Box Inc

Overview: Restaurant Stocks

The restaurant industry is big business — from $43 billion sales in 1970 to approximately $863 billion sales in 2019. However, these figures do not take into account losses caused by the COVID-19 pandemic. While the pandemic shut down many private eateries, larger establishments leaned on food delivery services.

It’s broadly segmented into 3 camps: fast food, casual dining and full-service dining. The industry has been growing fast — with new players coming in and some leaving — and is slowly soaking up a larger portion of Americans’ spending.

Eating out is discretionary and rises and falls with broader economic swings. As disposable income grows, people appear to allocate more toward restaurant spending — and the reverse during a downturn.

Socialization and convenience are the 2 crucial drivers for this industry, from a customer perspective. Quick service has now outpaced table service, with more focus on off-premise markets like delivery, carryout, drive-through and food trucks.

Most fast-food chains now operate within a portfolio that is controlled by a mother corporation. Yum! Brands (NYSE: YUM), for instance, includes KFC, Pizza Hut and Taco Bell. By pooling multiple brands together, the company can gain a competitive advantage and spread risk out on multiple food niches.

While restaurant operators face numerous challenges, from rising wage costs to a tight labor pool, the consumer outlook for spending remains strong, especially as order delivery remains popular.

Best Online Brokers for Restaurant Stocks

The customer outlook for spending in the restaurant industry is strong, so an online brokerage account is the best place to take advantage of the trend. Opening an account helps you execute trades with speed and precision, access tools and indicators as well as back tested trading strategies.

Most brokers are now commission-free for ETFs and stocks, and there are no minimum account balance requirements. Explore restaurant chains, food-related businesses and the whole of the restaurant industry with these online brokers.

Features to Look for in Restaurant Stocks

• Operating margin measures the profitability of a chain’s restaurants and helps you assess whether a business is holding stable, weakening or growing stronger. Operating margin is a company’s operating income divided by the total revenue. Consider a high or growing operating margin — it suggests a restaurant company has a strong market position.
• Same-store sales measures the sales growth and revenue from existing restaurants. This figure captures the health of a business by combining pricing and customer traffic trends compared to the previous fiscal period. Increasing same-store sales indicates better customer retention, which will improve earnings power with time. Meanwhile, a growth rate that surpasses the industry average implies strong market share gains.
• Market capitalization in restaurant stocks typically varies with size and depends on factors like earnings power and global store footprint. Companies with a broader reach command larger valuation, as opposed to those with a limited reach.

What Are Your Restaurant Stock Takeaway Choices?

From fast-casual brands and high-end steakhouse chains to pizza-delivery concepts and premium coffee makers, your stocks menu isn’t lacking options. Certainly, each of the stocks will probably endure volatility along with the industry’s competitive landscape. But focusing on their financial advantages, business models and innovations, you have a better shot at creating a robust portfolio that includes the best restaurant stocks.

And if you’re in the market for bargain stocks, take a look at our lists of stocks under $20, stocks under $10 and even stocks under $5. Remember, restaurant sales remain strong due to firms like DoorDash (NYSE: DASH), so you must look far and wide to diversify your portfolio as much as possible.

The restaurant sector is made up of companies who operate full-service restaurants and franchises. This means companies who operate one type of restaurant, like McDonald's for example, or Darden, who operates and owns franchises such as Longhorn, Olive Garden, Bahama Breeze, and even more. You can even look into The Cheesecake Factory (NASDAQ: CAKE). Interested in other Consumer Cyclical stocks? Check Benzinga's Best Consumer Cyclical Stocks page for their daily rankings.