Investing in Fast-Food Stocks

Consumers will always crave quick service, low prices, and constant menu innovation. The fast-food industry delivers in more ways than one.

Fast-food restaurants can leverage the investments they made in digital and delivery over the last few years to drive growth for years to come. Now, the bigger threat to companies with exposure to discretionary spending stems from a challenging economic environment that is curtailing consumer spending.

However, because many fast-food chains focus on offering great value, a tough economic environment can pose fewer risks for well-run businesses. If you're interested in investing in the fast-food industry, here are seven top stocks to consider:

The granddaddy of the fast-food industry, McDonald's (MCD -1.61%) has been serving its iconic burgers and fries since 1955. The company's ethos centers on consistency and value. You know what you're going to get with McDonald's, and you know you won't pay too much.

While the company is still growing globally and remains the largest fast-food chain, consumers are being more selective with their spending, and some are pulling back on eating out due to inflation and economic concerns. McDonald's is focusing on digital, delivery, and drive-thru to boost sales higher in the coming years.

2. Wendy's

A growing cohort of sales now comes from Wendy's (WEN -2.81%) breakfast offerings, no small feat given that McDonald's is the go-to fast-food breakfast option for many commuters. Breakfast is a big part of Wendy's growth strategy, particularly as the landscape for consumer spending shifts.

Unique items such as the Frosty-ccino and the Breakfast Baconator help Wendy's stand out in a highly competitive space, and increased advertising spending is raising awareness among consumers. Other pillars of Wendy's growth strategy include boosting digital sales and ramping up new restaurant openings.

While McDonald's offers investors stability, Wendy's has the opportunity to grow faster as it expands its smaller restaurant base and takes a bigger bite out of breakfast.

3. Restaurant Brands International

Restaurant Brands (QSR +1.00%) added to its portfolio with the acquisition of Firehouse Subs in late 2021. Firehouse Subs is Restaurant Brands' smallest chain, but it could easily expand the brand to many thousands of locations over time. Burger King, Tim Hortons, and Popeyes round out the Restaurant Brands stable of restaurant chains, which span burgers and fries, coffee and breakfast, fried chicken, and sandwiches.

Despite challenges in North America, the company's international business, particularly in Tim Hortons and Popeyes, continues to show strong growth and profitability. Restaurant Brands is focused on increasing franchise profitability, particularly in Burger King's U.S. business, and is investing in store renovations, acquisitions, and new menu items.

4. Domino's Pizza

While almost every restaurant was forced to embrace delivery to stay afloat several years ago during the pandemic, Domino's (DPZ -0.27%) already had its own delivery infrastructure in place. By avoiding third-party delivery companies, the pizza chain maintained control over the customer experience and kept costs down.

Domino's has since embraced third-party delivery apps while maintaining its own delivery infrastructure. Domino's has delivered solid revenue and profit growth, benefiting shareholders through a consistent dividend and share repurchases. The company is the world's largest pizza company, and its strong global franchise system continues to expand.

Pizza chain Papa John's (PZZA +2.11%) has long played second fiddle to the larger Domino's. Controversy over statements made by founder and former CEO John Schnatter a few years ago hurt the brand, leading to his ouster and an ongoing feud.

The company has been actively reinvesting savings into initiatives aimed at improving value perception among consumers, which may be affecting short-term operating margins. Papa John's is facing challenges in the competitive pizza market, with declining sales and a need to regain customer loyalty.

While growth has slowed somewhat, the company's smaller size and vast potential for restaurant growth make it an interesting fast-food stock to consider.

6. Yum! Brands

7. Starbucks

You may not think of coffee chain Starbucks (SBUX -0.24%) as fast food, but its quick service of drinks and snacks, along with its drive-thrus in many locations, certainly puts it in the same category as more traditional fast-food companies. Starbucks is a bit different from other fast-food chains because it doesn't franchise. Aside from some licensed locations, Starbucks operates its own stores. Even with its capital-heavy model, Starbucks has managed to open around 40,000 locations worldwide.

Challenges have persisted in recent years and driven fluctuations in revenue growth as well as profits. Increased competition in key markets like China, pricing issues as consumers increasingly push back against costly discretionary expenditures, and shifts in the macro environment have all been factors there.

In 2024, CEO Laxman Narasimhan departed the company and was replaced by Chipotle's (CMG -3.89%) long-time CEO Brian Niccol. A new, renewed vision for growth could spur the business toward a brighter future. And while competition for away-from-home coffee is intense, the iconic Starbucks brand and unrivaled store footprint give it an advantage over other chains as well as local competitors.

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