3 “Ready to Reopen” Restaurant Stocks

3 “Ready to Reopen” Restaurant Stocks

Restaurants have received the brunt of investors’ wrath amidst the coronavirus pandemic.  Those who shorted the restaurant industry at the outset of the pandemic made a bundle while the industry’s loyal investors took quite the beating.  The tables are set to turn now that the economy is reopening.  People are tired of making their own meals, coffee and dessert.  The time has come for the masses to return to the convenience and deliciousness of restaurant food and coffee shop quality java.  Shares of Starbucks, Domino’s Pizza and Restaurant Brands International stand a good chance of increasing as the masses scrap the DIY ethos for restaurant food and beverages.

Starbucks (SBUX)

If you are like most people, you are tired of brewing plain old coffee every single day.  Now that workplaces are reopening, the last thing you want to do is invest your limited time available in the morning to brew plain-tasting coffee when the baristas can make you a tasty cup of joe that takes mere seconds to pick up.  SBUX started its sky-high climb in October of 2018.  Everything was peachy keen for the stock until the coronavirus market meltdown, sending SBUX right back to its high-50s price point that served as its initial launching pad back in ’18.

Though the pandemic has prevented SBUX customers from stepping foot into its stores, SBUX drive-thru lanes have largely remained open.  Now that people are returning to work, SBUX sales will inevitably spike, possibly returning back to pre-coronavirus levels when locations can open their doors and serve customers outside of the drive-thru lanes.

Though SBUX earnings are sure to decline as a result of the pandemic, the coffee giant will undoubtedly land new customers as the independent mom and pop coffee shops close their doors for good.  This is the perfect example of corporate America surviving the pandemic while small businesses disappear due to comparably shallow pockets.  Though this trend is certainly concerning, it presents a golden opportunity for investors.

SBUX has a B POWR Rating Peer Grade and a #8 POWR Rating ranking of 48 restaurant stocks.  Furthermore, competing coffee chain Luckin’s accounting scandal is sending business SBUX way.  Tack on the fact that the average analyst SBUX price target is $80 and the stage is clearly set for a bull run.

Restaurant Brands International (QSR)

Take a moment to consider the first thing the average person will do after the coronavirus lockdown is lifted.  If you are like most people, your thoughts immediately turn to food.  The average person will inevitably head out to the likes of Popeyes, Tim Hortons and Burger King for his/her favorite food within the first couple days of the reopened economy.  After all, you can only make the same half dozen DIY dishes at home so many times before you need some culinary diversity.

Even if few people sit down to dine in QSR restaurants, plenty will get their food to go or at least swing by the drive-thru.  QSR has nearly 700,000 restaurants in the United States alone.  The stock was oversold all the way down to $28.25 on March 18.  Today, QSR trades for $52.20, still far away from its 52-week high of $79.

QSR has a B POWR Rating Peer Grade and ranks in the POWR Rating top 10 of 48 stocks in the restaurant industry.  Though QSR’s Tim Hortons franchises have disappointed this past year, these restaurants will expand their reach into China thanks to a recent financing deal with Tencent.  Furthermore, the public’s pivot toward meatless offerings in the wake of the nationwide meat shortage bodes well for Burger King’s popular Impossible Burger.  Buy the dip and QSR should continue its bounce-back as we emerge from quarantine.

Domino’s Pizza (DPZ)

Imagine a business that sells cheap, mildly tasty food yet intentionally sacrifices seating space for delivery and pick-up service.  One would think this business would struggle yet that is not the case with DPZ.  DPZ really is the manifestation of irreverence for convention.

Though people have been understandably skeptical of food made at restaurants as it is handled by human hands that might carry the coronavirus, DPZ stock has soared before and also during the COVID-19 pandemic.  DPZ same-store sales are up more than 3% from the year prior.  The company’s international business is grwoing at a rate of nearly 2%. In fact, DPZ is hiring 1,000 new workers throughout its 100+ Chicago stores.

If you are still on the fence as to whether DPZ is a stock worthy of buying and holding for the long haul, consider its POWR Ratings performance.  DPZ is rated as an A, meaning it is a strong buy.  The company has a POWR Rating industry rank of 2 out of 48 restaurant stocks.  DPZ has As across the POWR Ratings board but for its industry rank of B.

DPZ brought in a bevy of new customers amidst the pandemic, many of whom will remain loyal to the pizza chain for years and decades to come.  This stock has nowhere to go but up, likely to and beyond its 52-week high of $387.85.

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SBUX shares fell $0.04 (-0.05%) in after-hours trading Thursday. Year-to-date, SBUX has declined -14.74%, versus a -10.94% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More…

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