Chasing Tasty Winners

I must admit, I'm rather blown away by the performance of our Motley Fool Hidden Gems newsletter service. Its recommendations have, on average, gained 39% vs. 18% for the S&P 500. That's a big difference. (And before I go any further, I'll also note that though strong, our track record is still young.)

One of the best picks made by Fool co-founder Tom Gardner, who heads up the service, has been Buffalo Wild Wings (NASDAQ:BWLD). It has doubled in value since he first gave it the nod back in July of 2004. He's recommended it two more times since then, most recently in March of 2005 -- and it's advanced more than 40% since then.

This got me thinking about what other food-serving businesses might be in similar positions to that of Buffalo Wild Wings. Fortunately, I didn't have to think too hard, because a few months ago, I learned a lot from QSR magazine, which covers the "quick-serve restaurant" industry.

Winners and losers
In its August issue, QSR listed the top 50 quick-servers (ranked by system-wide sales). As you might expect, the top of the list featured not-so-obscure names such as McDonald's, Burger King (NYSE:BKC), and Wendy's (NYSE:WEN). But further down the list were some up-and-comers. Buffalo Wild Wings, for example, came in at No. 29, up from No. 32 last year. Here are a few other notable names, including their 2006 and 2005 ranks:

Some names sliding down a few spots included Fazoli's, Sbarro, Captain D's Seafood, Baskin-Robbins, Checker's, Little Caesar's Pizza, and Hardee's.

To give you an idea of scale, McDonald's system-wide sales for 2005 totaled $25.6 billion, while Burger King rang up $7.9 billion and Wendy's $7.7 billion. (If you combine sales of the main properties of Yum!Brands (NYSE:YUM) -- $6.1 billion for Taco Bell, $5.3 billion for Pizza Hut, and $5.2 billion for KFC -- you'll get a whopping $16.6 billion, enough to land in the No. 2 spot.)

Meanwhile, Panera Bread's revenues were $1.6 billion, Buffalo Wild Wings came in at $657 million, Chipotle's sales were $628 million, and Blimpie's Subs rang in at $327 million. It's quite a range.

Looking for winners
So if you want to find the next Buffalo Wild Wings in this bunch, what should you do? Well, do some digging. Order financial reports and information from all the public companies. Even among the many that are not yet publicly traded, you can often get a lot of information that's available to prospective franchisees. Visit any of the chains near you and stop in on some when you're on vacation. (Remember that this is a tough business -- so don't let yourself be overly swayed by a tasty milkshake. Try to see which chains have sustainable advantages and the most promise.)

Read about any restaurants you find written up in the press. Here in Fooldom, you'll run across some informative articles on the industry -- such as:

• "Raging Rewards From Restaurants," in which Rick Aristotle Munarriz points out that Tom Gardner has also recommended a related company -- Middleby (NASDAQ:MIDD) -- that sells commercial ovens to restaurants.
• "Delicious Results for Chipotle"
• "Drive-Throughs Drive Profits"

Check out trade periodicals, too, such as QSR. They offer a great way to learn lots of details about the industry and to keep up with trends and developments.

As you learn, start a list of companies in which you'd like to invest. Then keep an eye out for news of which ones may be going public. Even then, though, it's often best to hold off on investing for a year or more, as initial public offerings (IPOs) can be rather volatile.

Seek recommendations
If you'd like someone else to do much of the work for you, consider giving our Hidden Gems newsletter a whirl. You can do so for free for a whole month, during which time you'll be able to access all past issues. You'll see all our recommended companies and can read a detailed report on each one. The newsletter service focuses on finding tomorrow's giants today, while they're still small, and it covers lots of interesting industries.

Here's to a happier portfolio! (And hey -- consider forwarding this article to anyone whose financial future you care about. Just click on the "Email this page" link near the top or bottom of the page.)

Longtime Fool contributor Selena Maranjian owns shares of McDonald's and Yum! Brands. Her favorite discussion boards include Book Club, Eclectic Library, Television Banter, and Card & Board Games. For more about Selena, viewher bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.