Feast on Profits: 3 Sizzling Restaurant Stocks Heating Up the Market

Stocks to buy

The 0.7% month-over-month increase in Americans’ spending at “restaurants and bars” last month was very encouraging for restaurant stocks. The data suggests that Americans continue to prioritize eating out even nearly two years after the lockdowns were terminated.

One factor behind the latter trend may be the large emphasis that millennials and Generation Z tend to place on great experiences. A related contributor could be the continued strength of travel trends in recent months. Also helping restaurant chains is the labor market which remains quite robust. Indeed, a very high and impressive 353,000 net nonfarm jobs were added to the economy last month. Of course, employed individuals are far more likely to eat often at restaurants than unemployed ones, and it appears that that the vast majority of Americans who want a job have one these days.

Given these points, it’s a great time to acquire restaurant equities. Here are three of the best restaurant stocks to buy.

Potbelly Corporation (PBPB)

Source: Ken Wolter / Shutterstock.com

Potbelly Corporation (NASDAQ:PBPB) issued a very positive preannouncement on Jan. 8. Specifically, the sandwich restaurant estimated that its same-store sales would jump a strong 5.9% to 6.4% year-over-year in Q4 versus its previous guidance of a 4% to 6% increase.

Also noteworthy is that it estimated that its systemwide sales had jumped 11% to 11.5% in Q4. And for all of 2023, its same-store sales soared 11.9%-12%.

Given all of this strong data, I think it’s quite safe to say that PBPB is a major beneficiary of the strong demand for restaurant offerings in America.

Finally and importantly, analysts on average expect the firm’s earnings per share to climb to 25 cents this year from 16 cents in 2023, while the name is trading at a very low trailing price-to-sales ratio of 0.77 times.

In light of all of these points, I view PBPB as one of the best restaurant stocks to buy. PBPB has advanced 30% in the previous three months.

Shake Shak (SHAK)

Source: Here Now / Shutterstock.com

Gourmet hamburger restaurant chain Shake Shack (NYSE:SHAK) reported very strong fourth-quarter results on Feb. 15 as its system-wide sales soared 21.4% versus the same period a year earlier to $442 million, while its net income came in at $6.8 million, way better than the net loss of $7.76 million that it generated in Q4 of 2022.

SHAK has been a major beneficiary of its launch of new stores and its deals with new franchisees in America, as it launched roughly 40 new locations last year and signed licensing deals with about the same number.

The company had about 600 owned or licensed locations in the U.S. as of last December while Chipotle (NYSE:CMG) had 3381 restaurants in America. So SHAK still can grow its top and bottom lines tremendously just by opening more stores.

I also believe that the company’s decision, announced during a conference in November, to devote more of its dollars to marketing in general and connected TV ads, in particular will bear fruit. The firm says that many Americans don’t know about Shake Shack yet, so showing more ads could certainly boot its brand awareness and sales.

And given the rapidly increasing popularity of streaming TV, particularly among the millennials and Generation Z members who tend to be big restaurant fans, I think that connected TV ads will prove to be very profitable for SHAK.

SHAK has climbed 46% in the previous month.

Restaurant Brands International (QSR)

Source: Shutterstock

In line with my previous expectations, Restaurant Brands International (NYSE:QSR), the owner of the Tim Hortons and Burger King chains, delivered strong 2023 results under the leadership of its executive chairman, Patrick Doyle. I was confident in Doyle because under his stewardship Domino’s Pizza (NYSE:DPZ) carried out a tremendous turnaround in the 2010s, and it appears that he’s working his magic again with QSR.

Also importantly, Restaurant Brands has developed a viable plan to deliver strong shareholder returns over the next decade.

In 2023, QSR’s revenue jumped to $7.02 billion from $6.05 billion, while its operating income advanced to $2,14 billion from $2.02 billion. And last quarter, its comparable sales rose an impressive 6% versus the same period a year earlier.

Under the firm’s long-term plan, Tim Hortons, known for its coffee, will add more lunch food to improve its afternoon sales, while also introducing more cold beverages.

Meanwhile, Burger King’s restaurants will be modernized and the marketing of the brand will be intensified.

QSR has advanced nearly 25% since October.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

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