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3 Stocks to Buy if Cramer's Right About Restaurant Stocks

By Rick Munarriz – Nov 10, 2016 at 4:08AM

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Shake Shack, Cheesecake Factory, and Zoe's Kitchen are positioned nicely to cash in when folks embrace the restaurant experience again.

Image source: Cheesecake Factory.

If Jim Cramer's right, this so-called "restaurant recession" is about to become a thing of the past. Cramer's thesis -- as spelled out during CNBC's Mad Money on Tuesday -- is that folks were refraining from dining out as a result of the pre-election drama and distractions. They didn't want to miss a thing, so dining at home was enough, with battling politicos providing the entertainment.

With the election now fading in the rearview mirror, folks should start to eat out again. If he's right this will naturally be welcome news to eatery operators as well as investors in restaurant stocks. Many of the former market darlings have been hit pretty hard lately. Let's look at a few chains that are ripe for a comeback if Cramer's correct.

Shake Shack (SHAK 1.15%)

The fast-growing "better burger" rock star came through with another blowout quarter last night. Revenue soared 40% since the prior year to hit $74.6 million, fueled by heady expansion and a 2.9% uptick in comps. Comparable-restaurant sales have moved higher in the past, but any chain posting store-level growth is standing out in this challenging summer. Adjusted earnings rose 25%. 

Shake Shack just crossed the 100-unit mark worldwide during the quarter, but since it owns most of its stateside locations, it's the big beneficiary of its high-volume burger joints. Shake Shack has been in a slump lately, but it's still trading well above its early 2015 IPO price of $21. 

The concept is simple, but it mixes things up with steady tweaks to its gourmet burgers and frozen custard shakes to keep customers coming back. 

Cheesecake Factory (CAKE 0.46%)

Shake Shack generates higher volumes than its rival burger flippers, and Cheesecake Factory follows suit in the realm of casual dining restaurants. The chain with its massive menu, mammoth portion sizes, and decadent cheesecake offerings is getting back into a good groove. It also posted blowout financials when it stepped up to the serving plate two weeks ago.

Cheesecake Factory saw its comps climb 1.7% in its latest quarter. That may not seem like a lot, but it was enough to extend its streak of positive quarterly comps to 27. It had a year stretching for more than a decade before that. In other words, its popularity has been consistent. 

One of the knocks on the industry during this restaurant recession is that the gap between dining out and the cost of making a homemade meal is growing. Food inflation has held steady and, in some cases, decreased. However, eateries have to pass on growing costs includes wages and healthcare. Cheesecake Factory argues that it hasn't felt the pinch, considering itself to be in the elite class of experiential dining. Customers treat themselves when they go to Cheesecake Factory, making it more than just the replacement of a meal at home. 

Zoe's Kitchen (ZOES)

Giving Mediterranean cuisine a fast-casual spin has helped Zoe's Kitchen stand out, but the stock has taken a beating in recent weeks. It did announce disappointing second-quarter results three months ago, but with comps holding up in positive territory, the stock's 39% plunge since that ill-fated report seems overdone.

Zoe's Kitchen will have a chance to prove itself worthy of being a market darling again when it reports early next week. Zoe's Kitchen should be a big beneficiary as the restaurant recession passes. It offers a menu that isn't easily duplicated at home for most kitchen commandoes, and the concept is rare outside of indie mom-and-pop operators.

Rick Munarriz owns shares of Shake Shack and Zoe's Kitchen. The Motley Fool owns shares of and recommends Zoe's Kitchen. The Motley Fool is short Shake Shack. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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