I awarded three world-class medals in the Internet sector earlier this week. Today, I return to my roots -- the restaurant sector, which I covered when I began writing for The Motley Fool in 1995.
Obviously, this isn't the best of times for eateries. Commodity prices have inflated food costs, even as cash-strapped consumers clamor for value-minded menus. Toss in other factors, like higher minimum wages and stratospheric gas prices, and it's easy to see why this niche has been out of favor lately.
Thankfully for opportunistic investors, there are actually plenty of attractive opportunities in restaurant stocks. Some companies are doing a lot better than their peers. It makes them sound investments today, and even better plays if you can get in before the industry swings back into Wall Street's good graces. Here are three restaurant companies standing on the winners' podium.
Gold: Chipotle Mexican Grill
Shares of Chipotle Mexican Grill
Is Chipotle falling apart like an unrolled barbacoa burrito? I don't think so. Let's take a closer look at last month's "miss" of a quarterly report. Profits increased 23% to $0.74 a share. A 7.1% uptick in same-store sales and smart expansion fueled a 24% gain on the top line. The market was holding out for a little more, but take a look around. Do you see any other chain pulling in these kinds of numbers in this tricky environment?
Chipotle spoiled investors with perpetual double-digit gains in comps, but if it can deliver its current healthy overall results in an operating climate where both margins and patrons are being squeezed, you have to really like Chipotle's prospects when we start eating out again in even larger numbers. Chipotle is now trading at 24 times next year's profit target. It hasn't traded at a multiple this attractive since its IPO. That worked out well for the company's initial investors, and it should have the same favorable result this time around, too.
Did somebody say McDonald's
Few restaurant stocks currently tempt analysts to inch their earnings guesstimates higher, but McDonald's is one of them. The company has easily topped Wall Street's expectations in recent quarters; its Dollar Menu draws in consumers, while upsell items such as premium salads and chicken-breast sandwiches broaden its offerings with healthier alternatives.
McDonald's is rolling along nicely this summer. Stateside comps shot up 6.7% last month, as burger chains such as Burger King
This story may be old news to some. The stock is a five-bagger since bottoming out five years ago. However, between its healthy 2.3% yield and its attractive valuation (just 17 times next year's estimated earnings), Mickey D's is an opportunity worth repeating.
Bronze: Buffalo Wild Wings
The wings are flying again at Buffalo Wild Wings
It helps that chicken wings haven't been subjected to the escalating commodity spikes seen elsewhere. You won't find a dollar menu at Buffalo Wild Wings, but it's still an economical outing compared to pricier casual-dining chains such as Cheesecake Factory
Despite its recent buoyancy, shares of Buffalo Wild Wings fetch just 22 times next year's bottom-line expectations. Like the other medalists, growing its net income at a healthier clip than its forward multiple.
Why settle for an eatery that's merely surviving, when you can bank on one that's thriving?
Our medalists have truly earned their honors amid a tough environment. And if you think I've overlooked any other winners, let me know by using the comment box at the bottom of this page.
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Chipotle Mexican Grill and Buffalo Wild Wings are Motley Fool Hidden Gems selections. Chipotle is a Motley Fool Rule Breakers pick. The Fool owns shares of Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz is a fan of any person -- or company -- with the skills to win a medal this summer. He does not own shares in any of the companies in this story, save for Cheesecake Factory. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a Michael-Phelps-caliber disclosure policy.