The best fast-food stocks of 2016 may not be the hottest brands at the moment. Instead, they're the companies that have proven resilient over the long term.
This is a space where a trend can push a company to new heights -- or, as we have recently seen, a food-safety crisis can send shares spiraling. The top fast-food stocks of 2016 are the ones that will be standing years from now, the companies to buy and hold even as some new trend pushes them from their perch or a momentary setback knocks them for a loop.
The top fast-food stocks of 2016 are well-loved, albeit sometimes maligned, brands that have stood the test of time. These are perennial winners that should be able to overcome any short-term obstacles.
Top fast-food stocks of 2016
|McDonald's||NYSE: MCD||$99.93 billion|
|Domino's||NYSE: DPZ||$6.98 billion|
|Chiptole Mexican Grill||NYSE: CMG||$11.62 billion|
Return of the Mac
For a few years it seemed like McDonald's (NYSE:MCD) had forgotten how to connect with consumers. The company struggled as trendier fast-casual chains, serving less-processed food, showed that consumers would pay more for the perception (and in some cases reality) of better quality. That led to an embarrassing series of missteps like Mighty Wings and its bizarre question and answer attempt to prove the quality of its menu which only highlighted that people had their doubts.
In September, 2015 however the company began turning things around when it launched All-Day Breakfast. A move that had been clamored for by its fans, it was a simple addition (albeit a technically complicated one) which reconnected the chain with something its best customers loved. That reignited sales and began the company's turnaround.
Since launching all-day breakfast the company has expanded that menu and has slowly announced changes to make its food healthier. That's a smart play which lines the chain up with current trends. McDonald's has adapted in a way that acknowledges it can make a better McNugget, but it's not serving health food.
The Big Mac, Filet O' FIsh, Egg McMuffin, and the rest of the company's menu may not be good for you, but they are American comfort food. McDonald's may fall out of favor for a time due to changing trends, but eventually people come back.
Convenience is key
Americans will tolerate a lot when it comes to pizza as long as they can get their order filled quickly. The same is apparently true of the rest of the world, because even though Domino's (NYSE:DPZ) offers mediocre pizza the chain has grown sales in the U.S. for 12-straight quarters while maintaining an astounding 90-quarter growth streak globally.
The chain has done this by being dependable and ubiquitous with over 13,000 global locations. Domino's is not only on essentially every street corner, it has also made getting its product as easy as possible. While ordering via emoji may be a gimmick, the company's website and app have led the industry.
Domino's stands as a top fast-food stock of 2016 because it has shown that it has mastered the art of getting people a pizza they like exactly when they want. That's a skill likely to remain in heavy demand for years to come which should keep pushing Domino's forward.
A comeback is inevitable
Serve real, non-processed food and your safety risks increase exponentially. That's a lesson Chipotle (NYSE:CMG) learned the hard way during its recent e. coli scare, which took hold in February of 2016.
Despite a quick response and strong efforts to tighten up its food-safety procedures -- including closing all of its stores for training for an afternoon -- the chain has struggled to rebound. In Q2, the most recent quarter the chain has reported results for, it saw revenue fall 16.6% to $998.4 million and comparable restaurant sales decreased by 23.6%.
That followed a first quarter with similar declines where the company actually lost money (albeit only $0.8 million). That's a stunning fall from grace for a chain which had been a public darling.
The past two quarters have been lousy for Chipotle and the e. coli hangover may linger for the rest of the year, or even longer. Ultimately however consumers will remember why they like the Mexican chain. It serves high-quality food at a decent price with relatively quick service. Ingredients are recognizable, carefully sourced, and the company has actually been willing to run out of key ingredients rather than compromise standards.
"Our entire company is focused on restoring customer trust and reestablishing customer frequency," said CEO Steve Ells in the Q2 earnings report.
Ultimately that will happen because even though people were scared by the e. coli breakouts, those problems have been contained, and eventually people will remember why they like this brand and come back to it.