NEW YORK (TheStreet) -- Restaurant names are on a roll, again.
Year to date, an index of 23 restaurant names that I track are up an average of nearly 21% year to date, vs. 16% for the S&P 500 and 15% for the Russell 2000. This has been an exciting sector for much of the past four years.
Historically, restaurants have been a top-performing sector coming out of recessions. During tough economic times, the supply of restaurants typically contracts, as lower demand forces weaker chains to close some doors, or the healthier ones to slow their growth. Once consumers begin to feel more confident, they typically eat out more often and it becomes a supply-and-demand issue.
This time around, however, it has seemed a bit different. While it's true that some names have struggled (non-publicly traded names such as Bennigans, Real Mex, Sbarro, and Friendly's to name a handful), the demand did not appear to slow down all that much during the past recession.In fact, many restaurant names did well and stockholders were well rewarded in many cases. I expected the bull-run in restaurants to end last year due to the fear of rising commodity costs, but while many names have raised prices, it has not seemed to shake consumers. Furthermore, there has been action in the sector in terms of new offerings and buyouts. Among recent IPO's are Del Frisco's (DFRG) which operates steakhouses, Mexican restaurant chain Chuy's (CHUY), Bloomin' Brands (BLMN), whose brands include Outback Steakhouse, and Bonefish Grill, and Ignite (IRG), parent of the Joe's Crab Shack brand. After being bought out in 2010, Burger King (BKW) re-emerged as a public company in June. On the other side of the ledger, PF Changs was taken private in May, California Pizza Kitchen was bought out in May, 2011. A smaller name, O'Charley's was acquired in February. As a value investor, I've always been partial to names that are either cheap or in turnaround mode. Denny's (DENN) has been quietly turning itself around, paying down debt and getting its financial house in order. While not a top-tier name, the company maintained profitability throughout the last recession, despite the fact that it had a large concentration of locations in some of the hardest hit areas.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV