Tasty Profits

The restaurant sector offers some satisfying stocks

Recession-inspired frugality among consumers might lead you away from restaurant stocks, but certain quick-service restaurants and other food stocks are doing well.

Consumers aren’t spending freely on dining out and are more concerned with cutting costs. However, in these tough and stressful times, if you have to sacrifice a gourmet meal, the least you can do is enjoy a burger, some fried chicken, or a doughnut every week.

By every measure, consumers are in a tough state. A lot of them don’t have jobs. Those who do are making less money, unless they’re wealthy. Their costs have increased and their homes’ values have decreased. And every time the stock market returns to growth, it seems something happens to cause another crash.

However, consumers are still eating out, even in the face of economic uncertainty. The National Restaurant Association’s Restaurant Performance Index, a monthly tracker of the state of the industry, returned to growth territory in September, following the broader economy out of a three-month malaise and ending—at least temporarily—fears about a second recession.

It remains to be seen whether this momentum can be sustained. Although spending continues, with consumer sentiment remaining at low levels, it won’t take much for spending to fall again. Moreover, since the savings rate fell in September, consumers had to dip into savings to spend more. For now, however, the rise in consumer spending has boosted the restaurant industry.

Restaurant chains can be a good investment.We all know there’s more to making a stock selection than just choosing what you want to eat for dinner. However, if you notice that your restaurant of choice is full of people enjoying their meals, you might be on to a profitable trend. Next time you eat out at a neighbourhood restaurant, chew over its financials, determine where it stands relative to market trends, and see if you can identify some tasty returns.

We have identified the Restaurant industry group as being in an uptrend, and SmarTrend has identified Uptrends in the stocks of several companies in this sector. PZZA (Papa John’s International, Inc.;) operates and franchises pizza delivery and carry-out restaurants under the Papa John’s trademark in the United States. It also operates dine-in and restaurant-based delivery restaurants in certain international markets.

As of March 2011, the company operated 3,687 Papa John’s restaurants consisting of 613 company-owned and 3,074 franchised restaurants in all 50 states of the U.S. and 32 countries. And yes, its brand recognition has probably increased as a result of a certain U.S. Republican candidate. SmarTrend shows shares of PZZA in an Uptrend and issued the alert on August 31, 2011 at $29.63. In lateNovember, PZZA was trading at $35.66—representing an increase of 20.4%.

DPZ (Domino’s Pizza, Inc.) operates a network of company-owned and franchise Domino’s Pizza stores, located throughout the United States and in 65 international markets. The Company also operates regional dough manufacturing and distribution centres. DPZ is in an Uptrend called by SmarTrend on August 24, 2011 at $26.77.With a price of $30.87 in late November, this stock increased by 15.3%.

PNRA (Panera Bread Company) In the United States and Canada, Panera Bread Company and its subsidiaries own, operate, and franchise retail bakery-cafés that also offer free Wi-Fi. Additionally, the Company manufactures and supplies dough and other products to company-owned and franchise-operated bakery-cafés. As of March 2011, it owned and franchised 1,467 bakery-cafés under the Panera Bread, Saint Louis Bread Co., and Paradise Bakery & Café names. SmarTrend shows shares of PNRA in an Uptrend and issued the alert on October 13, 2011 at $111.13. In late November, PNRA was trading at $133.00, representing an increase of 19.7%.

AFCE (AFC Enterprises, Inc.) develops, operates, and franchises chicken concept quick-service resrestaurants under the trade names of Popeyes Chicken & Biscuits and Popeyes Louisiana Kitchen. As of October 2011, it operated 1,998 Popeyes restaurants in the United States, Canada, Guam, Puerto Rico, the Cayman Islands, and in 27 other countries internationally. AFCE is in an Uptrend called by SmarTrend on October 12, 2011 at $13.65.With a price of $14.38 in late November, this stock has increased 5.3% since the Uptrend alert was issued.

The key to investing success is using objective data and trend analysis—coupled with careful fundamental research—to determine times to buy and sell. The trend for restaurant stocks is currently up, but that doesn’t mean all restaurant stocks are in an Uptrend.

Chip Brian is the Founder and CEO of SmarTrend®. If you wish to follow any of these stocks, and find out when their trend changes direction, try our 14-day free trial www.mysmartrend.com