With the New Year fast approaching, my thoughts nostalgically turn to an industry near and dear to my heart: restaurants! Sure, it helps that my heart and my stomach are in close proximity. But I also covered the restaurant industry when I began writing for The Motley Fool in 1995.
Eyeing the menu
Casual-dining concepts have fallen out of favor lately. Between a handful of overly leveraged laggards, and falling comps throughout the industry as penny-pinching consumers eat out less, it's a very tricky sector these days.
Fast-food chains have held up better, providing value in these recessionary times, but this doesn't mean I'm going to crown McDonald's
Don't get me wrong. "I'm lovin' it" as far as the Golden Arches go. The company put in another monster month of healthy unit-level growth in November. It's also one of the few stocks to actually be trading higher this year. But that elevated price also explains why I'll be looking elsewhere. McDonald's should fare well next year, but the real gains will be found in the resurgence of stocks that got hammered in 2008.
And the runners-up are …
There are plenty of worthy stock candidates here. I should start with Chipotle Mexican Grill
Chipotle has taken its lumps this year, but it's still growing. Comps rose 3.1% in its latest quarter, with revenue clocking in 18.9% higher. But it misses top honors because the company is struggling at the moment. Year-over-year profitability is down, and the company that wowed investors by trouncing Wall Street's profit targets in each of its first eight public quarters has now topped analyst estimates just once over the past year.
I'm also warming up to Jack in the Box
Sure, comps are growing faster at McDonald's and Chipotle than at Jack in the Box and Qdoba, respectively, but there's real value to the shares here. Jack earned $2.01 a share in its recently concluded fiscal 2008, after earning $1.87 a share a year earlier. It's targeting a profit of $2 to $2.20 a share in fiscal 2009. Looking further out, Jack sees bottom-line growth of 12% to 15% annually from 2010 to 2013. It's hard not to like the stock at just 11 times trailing earnings.
I'm also a fan of -- and investor in -- Cracker Barrel
The last runner-up would be BJ's Restaurants
And the winner is: Buffalo Wild Wings
The best bang for your buck in 2009 appears to be Buffalo Wild Wings
Revenue soared 28.8% in its third quarter. Comps and earnings also rose, though not at that torrid pace. As one of the few sit-down chains to show healthy growth at the unit level, the company is doing plenty of things right.
It is perfect? No. Buffalo Wild Wings missed analysts' profit estimates in its latest quarter. However, the company has only disappointed Wall Street twice in the past 11 quarters. At just 15 times next year's projected profitability, the company trades at an attractive price point, especially for an elite chain that has historically grown at a much healthier clip. There may be more attractively valued chains out there -- like Cheesecake Factory
Is that your stomach growling, or your wallet? Pull up a chair, fasten your bib, and prepare to feast on the best of the market's eatery stocks.
Other items on the menu:
Chipotle Mexican Grill and Buffalo Wild Wings are Motley Fool Hidden Gems recommendations. Chipotle Mexican Grill is a Motley Fool Rule Breakers selection. The Fool owns shares of Chipotle Mexican Grill and Buffalo Wild Wings. Try any of our Foolish newsletters today, free for 30 days.
Longtime Fool contributor Rick Munarriz still likes to dabble in eatery stocks, and owns shares of Cheesecake Factory and Cracker Barrel. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.