Portfolio construction is an often-neglected aspect of investing that not many people discuss. However, this skill is vitally important in ensuring that your portfolio can withstand crises and weather economic storms. Think of your investment portfolio as a pyramid with a wide base. You should start with a strong, foundational layer of resilient stocks at this base. You can then layer on stocks with faster growth along with more speculative ones closer to the apex.
By introducing this firm foundation for your portfolio, it will help to solidify it and enable you to withstand the market crashes and bear markets that come along from time to time. One source for such resilient stocks is the food and beverage sector. As eating is essential, companies in this area that have built up a strong presence and sturdy track record are in a better position to sail through a crisis unscathed.
Here are three stocks that can help to anchor your portfolio during times of volatility.
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Texas Roadhouse
With more than 650 restaurants located in 49 states, Texas Roadhouse (TXRH -1.28%) has demonstrated its ability to weather the pandemic and emerge even stronger. The popular steakhouse chain reported that total revenue for the first nine months of 2021 surged 46% year over year to $2.6 billion and was nearly 27% higher than the same period in 2019. Net income stood at $192 million, up 46% from the pre-pandemic period two years ago.
Comparable restaurant sales showed a strong improvement, increasing by 39.5% year over year while its profit margin increased by 6.9 percentage points to 17.3%. Texas Roadhouse also opened 18 company restaurants and two franchised outlets in the first nine months of 2021.
CEO Terry Morgan remains optimistic about the company's future, citing strong demand for the brand along with healthy cash flow that enabled the business to conduct share buybacks and resume paying out a quarterly dividend of $0.40 per share.
Finally, the company's planned acquisition of seven franchise restaurants in early 2022 should assure investors that it can continue to grow steadily as it leverages its brand's strength to attract more customers to its restaurants.
Chipotle Mexican Grill
Another resilient investment candidate is Chipotle Mexican Grill (CMG -0.18%), which has close to 2,900 restaurants in the U.S., Canada, and Europe. In 2020, it managed to report a 7.1% year-over-year rise in total revenue even though the bulk of its restaurants had to shut temporarily due to COVID-19 movement restrictions. The main reason for this was the company's pivot to online sales; digital revenue soared 174% year over year and made up 46% of total sales.
Chipotle's strong performance has carried forward into the first nine months of 2021 as well. Revenue climbed by 27.6% year over year to $5.6 billion while net income more than tripled year over year to $519.5 million. Digital sales, now a core aspect of the company, continued its rise, increasing 8.6% year over year for the third quarter and making up nearly 43% of total sales.
The company's investments in digital technology have paid off as it conferred the chain with the resilience that it needed to get through the pandemic. The good news is that Chipotle continues to invest in such technologies with the opening of its first digital kitchen just last month. The kitchen is designed for digital orders made through the Chipotle app or website, and customers and delivery riders can collect their orders through the drive-thru or walk-up window.
Domino's Pizza
As telecommuting became a mainstay of the pandemic, pizza chains such as Domino's Pizza (DPZ -0.25%) benefited immensely. The company had already displayed impressive growth even before the crisis hit. From 2018 to 2020, total revenue climbed 20.6% to $4.1 billion while net income rose 35.7% to $491.3 million. Total store count had also been steadily rising over that two-year period -- from 15,914 to 17,644 at end-2020.
Impressively, Domino's has continued its growth streak in 2021 with total revenue for the first nine months rising 9.2% year over year to $3 billion while net income inched up 4.5% to $354.8 million.
However, CEO Richard Allison has warned of rising costs for the pizza chain that could crimp margins this year. The company has the option to pass on the cost increases to customers through higher prices, but has chosen not to do so at the moment. Should inflation become too much to bear, prices could eventually be raised so that the company can preserve its margins.
Looking ahead, Domino's believes it still has a long growth runway. With close to 6,500 stores currently in the U.S. alone, management see the potential to increase that number to 8,000. Internationally, Domino's has nearly 12,000 stores and believes it could open up more than 6,500 new ones in its top 15 markets alone. So investors can sit back and comfortably enjoy their pizza while Domino's continues to expand and grow its business.
