Please ensure Javascript is enabled for purposes of website accessibility

3 Top Restaurant Stocks to Buy Now

By Rich Duprey - May 12, 2020 at 7:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These chains have performed well under the most adverse conditions.

The restaurant industry may be fundamentally changed by the coronavirus pandemic, but even with the ability to utilize takeout and delivery options to remain open when other businesses were forced closed, some chains may not survive.

Others, though, are adapting to a landscape they believe will be forever altered. Shake Shack, for example, announced it will be punching holes in the sides of its burger shops to allow for drive-thru and walk-up orders, as they believe social distancing will be the norm for a long time to come.

Investors still have a menu of options available to choose from when it comes to promising restaurant chains. Below are three that look to be among the best.

Hostess standing at restaurant entrance

Image source: Getty Images.

Darden Restaurants

Olive Garden owner Darden Restaurants (DRI 1.42%) could have been done in by the pandemic, but, having built out a substantial off-premises business before the crisis struck, it has been able to offset much of the loss from customers no longer coming to sit down and eat.

Although the restaurant operator's revenue was severely impacted, with comparable-store sales declining 45% through its fiscal fourth quarter, it saw its to-go business triple to almost $53 million a week on average at Olive Garden and quadruple to $28.6 million at its Longhorn Steakhouse chain.

As other restaurants amble toward reopening, Darden is likely not going to be able to maintain that pace of growth, but it might not lose all that much either, at least not initially. Shake Shack might just be right that consumers will be leery at first, and for a while thereafter, of dining in.

Darden Restaurants' off-site operations have proved themselves in a crisis and they should serve it well afterwards too, providing even greater supplemental benefits as its dining rooms fill up again. 

Texas Roadhouse

Like Darden's restaurants, Texas Roadhouse (TXRH 1.14%) found it necessary to quickly pivot its business model to survive, first adopting a basic to-go offering, then adding in curbside pickup to allow for additional contactless options.

In its first-quarter earnings report ending March 31 (meaning it includes less than a month of widespread stay-at-home orders), revenue fell 5.5% while operating income plunged 74% from last year. Comparable sales that had been up 8% and 4% in January and February, respectively, tumbled 30% in March.

At the same time, average weekly to-go sales surged four-and-a-half times from $9.1 million at the beginning of March to almost $42 million by the end of the month.

Although Texas Roadhouse suspended its quarterly dividend payment, which had been yielding 3.3%, this casual dining chain remains a solid restaurant that should be able to pick up where it left off.

Wendy's 

Wendy's (WEN 1.53%) might have missed analysts' top- and bottom-line estimates for the first quarter, but the results were better than what many might have expected, since McDonald's earnings were dismal in comparison.

Takeout and delivery are second nature to fast-food chains like Wendy's, which realize much of their revenue from their drive-thru windows. With 99% of its U.S. restaurants remaining open during the crisis, Wendy's was able to see a 1% rise in sales for the period while comps were flat (McDonald's comps were down 3.4%).

And unlike Texas Roadhouse, Wendy's has not suspended its dividend, which yields 2.4% annually. It has suspended stock buyback activity and is evaluating its capital expenditure plan with an eye toward reducing expenses and enhancing its financial flexibility, but the burger shop remains a top restaurant stock that investors ought to consider coming out of this crisis a stalwart investment in the industry.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Texas Roadhouse. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
DRI
$125.34 (1.42%) $1.76
The Wendy's Company Stock Quote
The Wendy's Company
WEN
$21.21 (1.53%) $0.32
Texas Roadhouse, Inc. Stock Quote
Texas Roadhouse, Inc.
TXRH
$89.40 (1.14%) $1.01
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$256.80 (-0.94%) $-2.43
Shake Shack Inc. Stock Quote
Shake Shack Inc.
SHAK
$52.17 (1.18%) $0.61

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.