Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

2 Top Restaurant Stocks to Buy in December

By Rich Duprey - Dec 8, 2020 at 8:50AM

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

One is a fast-food leader, the other a family-style dining favorite, but both should recover well from the pandemic.

The restaurant industry hasn't had an easy time of it during the pandemic, first having to rely upon takeout and delivery to survive, then in many places having to adapt to using largely (or solely) outdoor seating for on-premises service.

Yet as winter's chill settles over much of the U.S., most customers are losing their appetite for outdoor dining, and restaurants will have to make do with sharply limited indoor seating capacity. How well various chains will cope under these conditions is unclear, making this a difficult consumer discretionary sector to gauge.

However, in my view, these restaurant companies ought to do well regardless.

Couple eating in a restaurant

Image source: Getty Images.

Arcos Dorados

Arcos Dorados ( ARCO 2.25% ) is the world's largest franchisee of McDonald's ( MCD 1.61% ) restaurants, operating more than 2,200 locations across 20 countries in Latin America. That region, too, has been hit hard by the coronavirus pandemic, and between March and April, half of Arcos Dorados' locations were completely shut down.

Since then, it has been able to reopen almost all of them to some extent. Yet the region is still beseiged by the virus. The respected medical journal The Lancet last month published an article deeming the COVID-19 outbreak in Latin America a "humanitarian crisis," and pointing out that death rates from the coronavirus there are among the highest in the world.

With that as a backdrop, Arcos Dorados stock remains 37% below where it traded before the pandemic was declared, and though it has bounced off its 2020 lows, it has been fairly range-bound between $4 and $5 a share for most of the year.

There's reason to hope it can break out of this pattern soon. It has at least one sales channel -- drive-thru, delivery, or takeout -- available in 95% of its restaurants. In Brazil, where close to half of its restaurants are located, sales tumbled by 40% in the last nine months and adjusted EBITDA plunged by 70% -- but it remains a profitable market.

Arcos Dorados has the financial flexibility to survive. It has negligible amounts of short-term debt coming due, $771 million in long-term debt, and $136.5 million in cash. The hard part will be waiting for this health crisis to be resolved, but with effective vaccines soon to be deployed, normalcy should return soon enough. And at around $5 a share, Arcos Dorados is an attractive stock to consider.

Cracker Barrel

The same forces of value, menu changes, and off-premise sales that have helped maintain Cracker Barrel ( CBRL 0.16% ) for the past few years are the ones driving the restaurant operator during the pandemic.

In the earnings report it delivered last week for its fiscal 2021 first quarter, which ended Oct. 30, Cracker Barrel said comparable-restaurant sales were down more than 16%, while retail sales were off by 8%. However, that was a marked improvement from its fiscal fourth quarter, when comparable-restaurant and retail sales fell 39% and 32%, respectively.

Those relative improvements were driven by a strong off-premise business. Revenues from such sales now represent 25% of its total, up from 9% last year.

That's key, because Cracker Barrel sees its fiscal second quarter as an important period for the off-premise business. It's attempting to adapt to the different ways people will be celebrating the holidays this year -- rolling out catering options for families planning on more intimate gatherings than usual. For example, its popular Heat n' Serve Feasts are made to feed up to 10 people; the company has begun offering a smaller version intended for up to six.

"Our redesigned menu reinforces our strong value proposition and underscores our variety that we're known for," Cracker Barrel CEO Sandra Cochran said during the earnings conference call.

Investors seem happy with the direction the company is heading, and rejected for the fifth consecutive time an attempt by activist investor Sardar Bigalari to gain a seat on the board of directors.

Cracker Barrel stock is up 170% from its March low but remains 15% below its 52-week high. With a business that's getting back on track despite the pandemic, investors can expect further growth from this restaurant operator in the quarters to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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

Arcos Dorados Holdings Inc. Stock Quote
Arcos Dorados Holdings Inc.
ARCO
$5.45 (2.25%) $0.12
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$259.91 (1.61%) $4.12
Cracker Barrel Old Country Store, Inc. Stock Quote
Cracker Barrel Old Country Store, Inc.
CBRL
$127.43 (0.16%) $0.20

*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 service.

Stock Advisor Returns
633%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

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

Our Most Popular Articles

Premium Investing Services

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