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Why Restaurant Stocks Slumped Today

By Daniel Miller - Updated Mar 5, 2020 at 5:04PM

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But long-term investors shouldn't panic, and why it could be a buying opportunity.

What happened

Shares of Cheesecake Factory (CAKE 1.16%), BJ's Restaurants (BJRI 0.50%), and Red Robin Gourmet Burgers (RRGB -0.85%) all declined more than 10% at one point Thursday, with Red Robin dropping as much as 20%, as COVID-19 coronavirus fears continue to spread and pressure restaurant stocks, among many others.

So what

As fears regarding the COVID-19 coronavirus spread, and the number of new cases continues to rise, markets have been swinging from significant gains to losses on any given day. At the time of this writing, the count of COVID-19 coronavirus cases worldwide was 97,771, and deaths had reached 3,346. At least 165 people have tested positive in the U.S., and some companies in specific areas have begun to recommend employees work from home.

Public health officials are also suggesting that people think twice about attending large events and gatherings, and even places such as nursing homes. It's the uncertainty and disruption to some consumers' daily lives, and the fear the impact could get much worse, that are hurting the markets.

Cheeseburger, fries, and beverages on a table.

Image source: Getty Images.

Thursday was a down day, with the S&P 500 and Dow 30 trading 3.4% and 3.6% lower, respectively, and California declaring a state of emergency over the COVID-19 outbreak. Coronavirus fears are hurting restaurant stocks as analysts and investors believe the outbreak will hinder foot traffic and hurt sales during the quarter. Restaurant stocks have been hammered over the past month.

^SPX Chart

^SPX data by YCharts.

Now what

It's incredibly easy to be fearful about COVID-19 with all the headlines and stock market volatility, but from an investing perspective, this development shouldn't have a lasting impact on stocks. Will it hurt some businesses this quarter? Of course it's likely to have some negative impact. But that will all balance out over the long term, and it's possible this stock market correction could offer investors a discount on desirable stocks.

In fact, on Wednesday analysts at Wedbush Securities noted that restaurant stocks seemed oversold, and Wells Fargo took the opportunity to upgrade shares of Chipotle (CMG 0.75%) to overweight from equal weight, bumping the price target to $1,000. While the outbreak and uncertainty will almost certainly hurt many stocks in 2020, it's a great reminder for investors to dust off their investing thesis for stocks in their portfolio and ask themselves if the long-term strategy is still intact. Long-term investors owning solid businesses should take these virus-related pops and drops with a grain of salt and refrain from any knee-jerk reactions.

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Stocks Mentioned

BJ's Restaurants, Inc. Stock Quote
BJ's Restaurants, Inc.
$21.94 (0.50%) $0.11
Red Robin Gourmet Burgers, Inc. Stock Quote
Red Robin Gourmet Burgers, Inc.
$8.15 (-0.85%) $0.07
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
$27.81 (1.16%) $0.32
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,352.42 (0.75%) $10.09
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$40.19 (1.73%) $0.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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