We recently published a list of Top 10 Restaurant Stocks to Buy Under $20. In this article, we are going to take a look at where Arcos Dorados Holdings Inc. (NYSE:ARCO) stands against other top restaurant stocks to buy under $20.
The Impact of Trump’s Tariffs on the Restaurant Industry
Restaurant stocks are showing volatility amid Trump’s tariff impositions across various sectors. On April 7, CNBC reported that while US stocks are tumbling due to the effects of high tariffs on the import of goods from key trading partners, analysts do not anticipate the tariffs to hit most restaurant stocks directly. However, inflation is expected to follow behind, fueled by expert and investor fear of an impending recession. This may put pressure on the spending capacity of consumers, resulting in an economic downturn.
CNBC reported that UBS analyst Dennis Geiger said the following in a note to clients:
“We view the direct cost impact of tariffs on restaurants as manageable, with a focus on select commodity costs, but see the bigger risk as incremental pressure on consumer spending and industry demand.”
CNBC also reported that investor concerns affected restaurant stocks across all sectors. Fast food restaurant chains have historically shown the most resilience during recessions, as consumers looking for cheap dining options typically level down from fast-casual or full-service diners and eateries to fast food options. However, the drop in consumer spending witnessed last year saw fast food restaurants hit hard, as low-income consumers cut their spending to this sector, visiting them less frequently. High-income consumers, on the other hand, continued with their usual dining habits, creating a gap that negatively affected fast food companies. Quick-service restaurants thus underwent same-store sales declines.
How Are High-Income Consumers Behaving?
On March 8, Mario Carbone, Major Food Group chef and co-founder, appeared on CNBC’s ‘Power Lunch’ to discuss the effects of Trump’s tariffs on the food industry and how high-end consumers are behaving in the sector. Talking about New York, he said that the numbers are booming, going above their pre-Covid benchmarks. New York is thus telling us that everything is good, and there is no fear right now in dining in the luxury sector. Stats are up, and restaurants are packed, with consumer energy through the roof. As of right now, there are no signs of slowing at all if one evaluates the spending and trends in restaurant reports.
However, Carbone said that inflation hits the food and restaurant industry just like everyone else. The luxury food sector is responsible to the customer for bringing in the best ingredients for every meal, which is why it has no choice but to pass the effects on to the consumer in case such trends materialize.
Our Methodology
We sifted through stock screeners, financial media reports, and ETFs to compile a list of 20 restaurant stocks under $20 as of April 13, 2025, and chose the top 10 most popular among hedge funds as of Q4 2024. The list is ordered in ascending order of hedge fund sentiment. We sourced the hedge fund sentiment data from Insider Monkey’s database.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up of customers ordering from a McDonald’s restaurant in Latin America.
Arcos Dorados Holdings Inc. (NYSE:ARCO)
Share Price: $7.22
Number of Hedge Fund Holders: 21
Arcos Dorados Holdings Inc. (NYSE:ARCO) is a McDonald’s franchisee operating or franchising more than 2,140 McDonald’s-branded restaurants. Its operations are divided into four geographical categories: Brazil, the Carribean, the North Latin America division (NOLAD), and the South Latin America division (SLAD).
Analysts believe that Arcos Dorados Holdings Inc.’s (NYSE:ARCO) stock provides an attractive entry point. The company holds a competitive market edge due to its restaurant portfolio. More than half of its restaurants are free-standing units, which provide a mix of takeout, drive-thru, and delivery service options and boost restaurant sales.
On October 1, 2024, the company announced that it would exercise its option to renew its Master Franchise Agreement (MFA) with McDonald’s for another 20 years starting in 2025. This agreement has strengthened the company’s strategic footing, which stems from the geographic diversification of its solid restaurant base throughout Latin America.
On April 1, BTG Pactual initiated coverage of Arcos Dorados Holdings Inc. (NYSE:ARCO) with a Buy rating and a $10.50 price target. Analysts have bullish sentiments for the stock, and their median price target of $7.22 implies an upside of 45.43% from current levels.
Brennan Asset Management stated the following regarding Arcos Dorados Holdings Inc. (NYSE:ARCO) in its Q4 2024 investor letter:
“Arcos Dorados Holdings Inc. (NYSE:ARCO): Rough 2024…Shares Substantially Undervalued: ARCO produced solid operating results throughout 2024, but negative currency movements, including a near freefall in the Brazilian Real (over 20 percent decline), drove investors to dump ARCO shares. As we noted in our Q3 letter, ARCO announced that it renewed its master franchise agreement (MFA) with McDonald’s (MCD) at terms that were better than many anticipated. While we won’t rehash the entire ARCO thesis (see our 2023 Q2 and Q3 letters for more color), we continue to believe that ARCO is a unique asset (the license to operate essentially all MCD restaurants from Mexico south) that was turbocharged by COVID’s aftereffects. During and after COVID, a large percentage of restaurants closed and there was rapid adoption of drive-through and delivery sales. ARCO disproportionately benefited, given its larger share of free-standing stores. ARCO has a strong balance sheet (including substantial real-estate value), strong incremental returns on capital and a substantial growth opportunity. Brazil faces macro challenges, and further currency weakness is distinctly possible. That said, ARCO has a history of achieving same[1]store sale growth above inflation rates and Brazil has some of the highest delivery penetration rates and digital adaptation rates in all of LATAM. Furthermore, there is no reason for ARCO not to move its listing from New York to Sao Paulo and greatly neutralize the reporting impact from currency fluctuations. We strongly believe ARCO is mispriced at current levels.”
Overall, ARCO ranks 6th on our list of the top restaurant stocks to buy under $20. While we acknowledge the potential for ARCO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than ARCO but trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
