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2 Simple Strategies to Win With Restaurant Stocks

By Jeremy Bowman and Jon Quast - Jul 20, 2021 at 11:00PM

Key Points

  • In the restaurant industry, invest with your head, not your stomach.
  • Winners tend to keep on winning in the industry.

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Some tips to get started investing in the restaurant industry.

If you're considering investing in restaurant stocks, contributors Jon Quast and Jeremy Bowman have some tips.

In this Fool Live video recorded on July 2, they and bureau chief of healthcare and cannabis Corinne Cardina explain why you should remember to invest with your head and not your mouth when it comes to restaurants, and why winners tend to keep on winning in the industry.

Corinne Cardina: Awesome. Let's move on to our one takeaway from each of you that restaurant investors need to know. Jon, yours first.

Jon Quast: I mentioned a moment ago, investing, we invest with our heads and not with our stomachs. There's so many restaurants that I personally just love. I love fast food in general, that's my thing. Not all fast food restaurants are good investments long-term, and so that would just be my encouragement. How you like or don't like the food really has no bearing on how well it's going to be able to operate and create shareholder value over time.

Cardina: That's right. Jon and I have the same anecdote on this one. First stock I ever bought was Noodles & Company (NDLS 2.91%). Absolutely love it. They have zoodles, zucchini noodles. They have the most delicious flavor profiles. I loved their app, it gives you rewards. Terrible stock, have gone up maybe $3 over the past three years, and Jon, I think you feel the same way, right? [laughs]

Quast: Yeah. With Noodles & Company, that is one of my family's favorite places to eat because the little ones can get mac and cheese, the adults can get something more adventurous. My wife is gluten-free, she can get the zoodles like you said. It is just something for everybody. Probably as a family, it's our favorite place to eat. But as you said, the stock hasn't been a good investment. More recently, it's done well from its lows.

Cardina: Too bad I sold it. [laughs]

Quast: But maybe it's turning around.

Cardina: [laughs] Don't sell your stocks, people. Jeremy, what is your one takeaway?

Jeremy Bowman: I think what's great about restaurants, obviously, it's an industry we're all familiar with. We probably eat in a lot of these stocks. You don't need to overthink it. I think winners keep winning, as you pointed out with Noodles & Company. We've seen a lot of small, fast, casual stocks be a flash in the pan. Potbelly (PBPB 4.88%) is another one of them. I think the big companies like McDonald's (MCD 1.12%), Starbucks (SBUX 1.19%), Chipotle (CMG 2.00%), Domino's Pizza (DPZ 2.01%), they have huge brand advantages. Their scale, you think of the real estate that a company like McDonald's or the locations that Starbucks have on high traffic corners. Those stocks have been long-term winners, and I think as much as we're talking about disruption with delivery and that sort of thing, people are drinking coffee today, I have no doubt that people are going to be drinking coffee in 50 years. Same thing with burgers and pizza and burritos. I think the companies that have proven themselves in the past tend to keep winning. 

Corinne Cardina has no position in any of the stocks mentioned. Jeremy Bowman owns shares of Chipotle Mexican Grill and Starbucks. Jon Quast owns shares of Starbucks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends Domino's Pizza and recommends the following options: short July 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Noodles & Company Stock Quote
Noodles & Company
$5.30 (2.91%) $0.15
McDonald's Corporation Stock Quote
McDonald's Corporation
$262.18 (1.12%) $2.90
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,663.70 (2.00%) $32.61
Starbucks Corporation Stock Quote
Starbucks Corporation
$88.31 (1.19%) $1.04
Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
$412.24 (2.01%) $8.11
Potbelly Corporation Stock Quote
Potbelly Corporation
$5.80 (4.88%) $0.27

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

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