Your Stock Just Got Tagged: Restaurants

At The Motley Fool, we don't usually take a "top-down" approach to picking stocks. Rather than allow industry or macro forecasts to drive our investment decisions, we focus primarily on each company's fundamentals.

At times, though, it's certainly possible for us to single out attractive stocks by closely watching the market's prevalent trends. Great fundamentals unquestionably lead to price appreciation, but finding companies with those qualities often starts with some keen observation.  

Tagged and bagged
The tagging tool in our Motley Fool CAPS community is one great way to investigate interesting investment themes. CAPS is home to more than 4,600 rated stocks, and our tags organize those stocks into specific groups for you.

Tags range from obvious index, sector, and country classifications, to more creative categories -- businesses with "Top Brands," managements undergoing an "SEC Investigation," and even companies that have earned "Military Contracts." There are more than 600 tags in CAPS for you to explore, and you can view all of them for free right here.

Supertrend from a superfriend
To get you started, we'll walk you through a specific tag and touch on its underlying theme. Recently, co-founding Fool Tom Gardner highlighted "eating out" as one of his six supertrends, so let's stuff ourselves with stocks that might benefit from this phenomenon.  

Type the word "Restaurants" in the CAPS tags search box, and these are some of the stocks you'll find:

For simplicity, I've chosen some of the better-known or more highly rated companies to single out among the 66 stocks that bear the "Restaurants" tag in CAPS.

Another cool feature of CAPS tags: They provide the returns for each category, sort of like a mini-index. For our group of 66 restaurant stocks, the daily, 30-day, and one-year returns are:

From the chart, we can see that restaurant stocks have had a good run over the past year but are starting to fizzle of late. Could this short-term weakness represent a buying opportunity? I can't say for certain, but as Tom wrote, several factors bode well for the restaurant industry in the long run. Americans are busier than ever, and as a result, they have less time to cook a nice, homemade meal -- let alone shop for groceries and clean up afterwards. With more and more households having two wage earners, going out for a prepared meal is becoming commonplace. Of course, we still need to pick good stocks to take full advantage of this trend -- something CAPS can help us with.

It's interesting to note that younger, smaller concept chains such as Motley Fool Hidden Gems picks Chipotle Mexican Grill and Buffalo Wild Wings are rated much higher than fast-food stalwarts McDonald's and Wendy's. This underlines an important point about investing in restaurants: It's all about growth, differentiation, and ... well, growth.

Let's face it. There aren't many ways to reinvent food, so the key is to find that up-and-coming concept that is differentiated enough -- whether through price, menu, service, or atmosphere -- to be able to replicate itself all over the place. In other words, you're looking for the classic Peter Lynch regional, to national, to international growth story (or, you know, the McDonald's and Wendy's of the '70s).

Of course, that's a lot easier said than done. But when you couple a successful concept on the cusp of huge (prudent) expansion with the supertrend of people eating out more than ever, I'd say the effort is more than worth it. And hey, how bad can it be to do some "research" by chowing down at all the publicly traded joints nearby?

For even more help on how to play this long-term trend, here are three CAPS players with some advice on what (and what not) to order:

• CAPS player NetscribeRstrnts recommends Chipotle as a fresh and speedy way to play: "Chipotle has differentiated itself from its peers by committing to freshness and quality, offering good value for customers' money, a focused menu and speed of service. Going forward, it is expected that Chipotle will maintain its dominant competitive position by leveraging its brand awareness and proper execution of its plans."

• CAPS All-Star and fellow Fool TMFPlatoish likes Buffalo Wild Wings and cites a smooth yet robust experience: "Great restaurant chain concept in the early stages of a regional to national transition. They play to the 'watch the game at the bar with your buddies' mentality, but still provide an atmosphere conducive to family dining."

• Lastly, CAPS All-Star TheStillMan thinks the taste of Wendy's -- along with its stock -- has gone awfully stale: "I used to like them, but today they have absolutely no distinguishing characteristics -- other than the interiors looking shabbier than ever."

Tag ... now you're it, Fool.     
Whether you'd like to invest in a specific industry such as restaurants, profit from the recent subprime debacle, or scour through the beaten-down housing sector, finding great stocks often begins by selecting a category of interest, and then drilling down to find the goodies.

Our Motley Fool CAPS community is a useful way to research a multitude of investment trends taking place in our world. So join Motley Fool CAPS to start using the tags tool right away. It's tons of fun, and it won't cost you a cent.

For more CAPS Foolishness:

• 7 Growth Stocks on Sale
• 7 Highly Rated Stocks on Sale
• Read Tom Gardner's thoughts on supertrends and superstocks at Fortune.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Chipotle and Buffalo Wild Wings are Hidden Gems recommendations. Chipotle's B-class shares are a Rule Breakers pick. The Fool has a disclosure policy.