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Why Food Service and Cooking Equipment Stocks Surged Today

By Anders Bylund – Updated May 26, 2020 at 5:03PM

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Investors applauded some good news in the battle against the COVID-19 pandemic, as consumers could trickle back to their favorite restaurants again.

What happened

Restaurant supply specialists had a good day on Tuesday, thanks to positive news regarding COVID-19. Food distributors Performance Food Group (PFGC -2.33%) and US Foods Holding (USFD -4.61%) rose 12.8% and 8.5%, respectively, today. Restaurant equipment maker Middleby (MIDD -1.02%) peaked the day's trading action at 14.2%.

So what

Researchers are making progress toward an effective vaccine for the coronavirus. Vaccine developer Novavax started a phase 2 trial of its candidate and should have some preliminary results to share as early as July. Medical giant Merck announced research partnerships on both the vaccine and antiviral treatment sides of the COVID-19 equation. Meanwhile, many states are easing their way into gradual reopenings of shuttered restaurants.

All of the above is potentially good news for restaurant supply experts. Performance Food and US Foods should see their sales of restaurant-quality ingredients rise quickly as consumers make their way back to their favorite eateries. Middleby's top-line recovery should be slower since the company's sales depend on restaurant chains investing in their cooking infrastructure. Investors can look past the immediate effects and bet on the long-term bounce, of course.

A smiling group of restaurant staff in full uniform, with a chef in the middle.

Image source: Getty Images.

Now what

All three of the stocks mentioned above bottomed out in March and have been making significant gains since then. Middleby is trading 73% above its 52-week lows, while US Foods has more than doubled and Performance Foods tripled in less than six weeks.

They all have a long way to go before their shareholders can claim a full recovery, though, having lost roughly 50% compared with their yearly highs.

And it seems dangerous to claim a victory in the COVID-19 war at this early stage. The reopening process may trigger a second wave of infections, followed by renewed orders reducing restaurants to takeout and delivery services again. America needs a nationwide supply of tested and approved vaccines and antiviral treatments before the restaurant industry can expect anything close to a full recovery, and even early mover Novavax shouldn't expect full approval until early 2021.

Fingers crossed for a smooth path to a fast and full recovery, but you should be prepared for more market pain on the road ahead. Restaurants and food service stocks are more vulnerable than most industries due to the intimate connection with consumer habits and social events.

Selim Bassoul, former CEO, chairman, and president of Middleby, serves as Chief Innovator at The Motley Fool. Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Middleby. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Middleby Corporation Stock Quote
The Middleby Corporation
$126.85 (-1.02%) $-1.31
US Foods Holding Corp. Stock Quote
US Foods Holding Corp.
$26.88 (-4.61%) $-1.30
Performance Food Group Company Stock Quote
Performance Food Group Company
$44.83 (-2.33%) $-1.07

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

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