In this piece, we are going to look at 10 Best Restaurant Stocks to Buy Today.
Currently, quite a bit of anxiety is struck by restaurant stocks in the market, as the Russell index that tracks restaurants experienced a 6% fall since March 2024. Other sectors, like industrials, and materials, to name a few, are experiencing a similar struggle as restaurants. This situation, as a whole, is indicative of potential late-cycle market issues marked by the market’s slow growth in general, which is driven by consumer distress in the U.S. in a larger sense.
Moreover, amidst this inflation-stricken market, restaurants in the U.S. are in quite a bit of a meal deal war, hoping to fulfill the customers’ need for affordability. As such, Sonic, a drive-in fast-food chain headquartered in Oklahoma, U.S., is the newest member to join the war, as it has introduced a $1.99 value menu, boasting a selection of various food items.
Previously, Taco Bell and Burger King have already introduced their discounted meal deals, showcasing various brands’ dire attempts to attract customers in the given circumstances. Moreover, this is also driven by increased food and wage costs in the market, pushing down the margins of various restaurant brands, according to analysts. The Consumer Price Index has risen at a cumulative rate of 20.8% since February 2020, as reported by Bureau of Labor Statistics data. Thus, this explains why restaurant ETFs and stocks have started off the third quarter on a lower note.
Nevertheless, there’s bright hope as the global fast food, which goes hand-in-hand with the restaurant industry, is set to grow at a CAGR of 3.7% from 2023 to 2032, expected to reach $1 trillion by then. Furthermore, one can keep their hopes high, as it is reported that a staggering 37% of the U.S. population is a consumer of fast food. For the fast-food market, the millennial segment is one that it must rely on the most, as 54% of this segment steps toward fast-food chains once or twice every week. You can check out our article about the 20 Fast Food Chains with Most Locations in the World.
On the other hand, according to the National Restaurant Association, the U.S. restaurant industry is forecasted to result in $1.1 trillion worth of sales in the year 2024. This will translate into the employment of 15.7 million Americans. However, amidst the supply chain inefficiencies and rising costs, it would be challenging for restaurant operators to make profits, and technology is expected to play a decisive role in determining the winners and losers of the market in the coming time, according to market analysts.
Thus, it’s essential to know where to put your money, when it comes to the restaurant market. Hence, now we will take you to our list of 10 Best Restaurant Stocks to Buy Today.
A family enjoying their meal at a restaurant from the company’s franchise operations.
Methodology
To curate our list of 10 Best Restaurant Stocks to Buy Today, we gathered a list of all companies with a significant presence in the restaurant industry. We then further narrowed down the list based on the companies’ respective upside potential and ranked the finest remaining companies by their number of hedge fund holders as of Q1, 2024, using Insider Monkey’s database that tracks the activity of 920 hedge funds. For stocks with an equal number of hedge fund holders, we used their upside as the tiebreaker. Plus, note that all the stock prices quoted are as of writing this article unless otherwise stated.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Bloomin’ Brands, Inc. (NASDAQ:BLMN)
Number of Hedge Fund Holders: 29
With a current market cap of $1.66 billion, Bloomin’ Brands, Inc. (NASDAQ:BLMN) is one of the most valuable restaurant companies in the world! Bloomin’ Brands, Inc. (NASDAQ:BLMN), which owns several popular brands like Outback Steakhouse, Carrabba’s Italian Grill, and Fleming’s Prime Steakhouse & Wine Bar, is a casual dining restaurant holding company in the U.S.
The stock pushes its way through stocks like Brinker International and Wingstop. On the back of its great upside potential, as suggested by analysts, the stock is carrying a massive upside potential of 44%, which could take the current price of $19.19 to $27.64! Starboard Value LP and Tremblant Capital are the biggest hedge fund holders in the stock, carrying investment values of $242 million and $29 million, respectively. Moreover, the popularity of the stock has only grown on a Quarter-over-Quarter (QoQ) basis, as 5 more hedge funds have taken up a stake in the stock, taking the total tally to $400 million.
The company’s plans to find alternatives for their Brazilian business mean significant future cash inflow, offsetting their conversion of notes (maturing in 2025) to equity that resulted in the retirement of convertible notes worth $84 million. Thus, with no fundamental downsides in the stock, and the stock price only suffering due to the issuance of shares, the stock rightfully finds its place in our list, despite its not-so-fiery performance in Q1 2024.
9. Darden Restaurants, Inc. (NYSE:DRI)
Number of Hedge Fund Holders: 32
Having its outlets in more than 1800 locations, and serving customers through its various brands like Olive Garden, Yard House, and Ruth’s Chris Steakhouse, to name a few, Darden Restaurants, Inc. (NYSE:DRI) is a full-service dining restaurant, headquartered in Florida, U.S.
Darden Restaurants, Inc. (NYSE:DRI) saw its sales soar in the last quarter of 2023 on the back of the commendable performance of each of its four segments. The aggregate sales figure of the company rose 6.8% to $2.96 billion, primarily, on the back of a 55.91% increase in sales from its dining segment, as compared to the quarter, a year ago.
Furthermore, the analysts had given an estimate of $2.6 earnings per share (EPS), whereas the company recorded an EPS of $2.65 for the quarter. Resultantly, the company was able to declare a quarterly cash dividend of $1.4 per share, which was an increase of 6.9%, as compared to the previous quarter.
The company was also able to add 80 new company-owned outlets of Ruth’s Chris Steak House, along with 37 other new restaurants in the quarter, which also explains the rise in profitability and sales in the quarter.
Thus, the analysts, understandably, see the stock reaching $173.92 from its current price of $145.42, which would be an upside potential of a sweet 20%! With 32 hedge fund holdings in the bag already as well, the stock finds its rightful place in our list of 10 Best Restaurant Stocks to Buy Today.
We have to note that DRI shares were already trading above $175 just 3 months ago. DRI “is the best bellwether for full-service restaurant stocks in the space that we cover” Guggenheim’s Gergory Francfort said last month. DRI shares currently trade at a forward P/E of 15. Obviously if this price war escalates further or the economy rolls into a recession, we will probably buy DRI shares at much lower levels.
8. Dutch Bros Inc. (NYSE:BROS)
Number of Hedge Fund Holders: 33
Dutch Bros Inc. (NYSE:BROS), which is a drive-thru coffee chain in the U.S., is in a race of its own, as it opened up 153 new outlets in 2023, 37 of which were opened in the last quarter of the year alone! Moreover, the same number of outlets are set to open up in 2024 as well, which shall take the total count over 1000 by the end of the year!
Therefore, 33 hedge funds have held on to this stock, as of Q1 2024, taking up a total stake of $738.9 million! Moreover, Dutch Bros Inc.’s (NYSE:BROS) stock has been flying high in terms of popularity on a quarter-over-quarter (QoQ) basis, as the number of hedge fund holdings has increased from 23 in the Q4 2023 to 33, as of Q1 2024! The analysts see the stock price going as high as $50, as compared to its current price of $40.33, which means an upside potential of 24%! Citadel Investment Group has the biggest investment in the stock, totaling $160 million!
BROS shares bucked the industry wide trend in June and soared more than 50% over the last couple of months. In comparison SBUX shares lost around 20% year-to-date. Dutch Bros is a cheaper alternative to Starbucks and growing at the expense of coffee giant. Considering that budget constrained consumers are looking for cheaper Starbucks alternatives, it isn’t a surprise that BROS shares have been performing very well recently.