The market's been rallying lately, but don't assume that every stock deserves to go along for the ride.
Every week, I dig into a stock that I feel is headed for a fall. I also come right back and suggest three other stocks that I think will beat the market. It's a three-for-one trade, so I hope I'm overweighted in being positive.
Who gets tossed out this week? Come on down, Brinker International
So hot, it's Chili's
Brinker's posted one of the healthiest bounces off a multiyear low these days. The parent company of Chili's hit $3.88 a share less than four months ago, but it's more than tripled in price since.
True, there have been a few positive developments at Brinker to warrant the bounce. It received a new $215 million credit facility earlier this month. The undoing of rival concepts like Bennigan's is also a positive to the casual-dining chains still standing.
- Revenue fell by 8% during the period.
- Earnings fell even more, down to $0.27 a share after earning $0.31 a share a year earlier.
- The tables are collecting dust, with comps sliding by 5.4% during the quarter.
Along the way, Brinker has become less relevant. It unloaded all but a 19.9% chunk of its Romano's Macaroni Grill chain last year. It also was an aggressive buyer of its own shares when the going was good. That may not seem like a negative to you -- until you consider that the company's stock was trading substantially higher at the time.
Ultimately, casual dining isn't forever. Tastes change, and it isn't long before Chili's stops standing out, and starts blending with its rivals in consumers' minds into an indistinguishable blur of funky decor and flair-encrusted employees. If that doesn't ring a bell, look up the meteoric rise and troubled fall of DineEquity's
As I have every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting tossed. Let's go over three new fill-ins.
Buffalo Wild Wings
Most restaurants are struggling, so the few chains thriving in this environment clearly stand out -- and the standout in standing out is Buffalo Wild Wings. The chicken-wing champion posted revenue and earnings gains of 33% and 29%, respectively, in its latest quarter. Same-restaurant sales jumped 4.5% at company-owned stores and 2.5% at franchised restaurants, proving that even the concept itself has wings. I tapped Buffalo Wild Wings as "the one restaurant stock to buy in 2009" back in December. It hasn't let me down.
In many ways, this haven of huge portions and encyclopedic menus is getting slammed like the rest of its casual-dining peers. Comps are down and earnings are faltering, with analysts expecting Cheesecake Factory's income to clock in 26% lower this year. However, this is still the class of the industry, with high-volume restaurants and a generally devoted fan base. When consumers do begin to feel comfortable going out to dinner again -- which may happen as soon as next month, when the federal payroll tax stimulus boosts take-home pay for more workers -- they could return to higher-class fare like Cheesecake Factory and California Pizza Kitchen
(NASDAQ:CPKI)before stopping at T.G.I. Chilibee's.
Chipotle Mexican Grill
Quick-service dining has been generally rocky for chains without a dollar menu, but the burrito rollers at Chipotle have bucked that trend. The company's latest quarter was reasonable enough; revenue rose by nearly 20%, and comps clocked in with a healthy gain of 3.5%. Earnings growth wasn't as kind, as operating margins got slapped around like avocado on its way to becoming guacamole. Still, net income remained positive. Chipotle should bounce back even quicker than the economy as consumers tire of one-buck burgers.
There's a whole world of intriguing eatery stocks out there. Check out the menu when you have the chance.
Other headlines from the weekly trash bin:
Buffalo Wild Wings and Chipotle B-shares are Motley Fool Hidden Gems recommendations. Chipotle Mexican Grill is a Motley Fool Rule Breakers pick. The Fool owns shares of Buffalo Wild Wings and B shares of Chipotle. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz can throw a mean curveball if he has to. He does not own shares in any of the stocks in this story, save for Cheesecake Factory. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy has had sufficient, thank you.