NEW YORK ( TheStreet) -- The restaurant business is notorious for many things; among them long hours, thin margins, huge sensitivity to both labor and input costs, and being prone to changing consumer tastes. Rising commodity costs, which worry me in general at this point, can wreak havoc.
Success among publicly traded restaurant names is often fleeting, save for a handful that have had true staying power throughout the years. McDonald's (MCD) is perhaps the greatest success story, with its long storied history and net profit margins in the 20% range, which makes it look more like a pharmaceutical name than a restaurant. I can still order the same things from the McDonald's menu that I did as a child; although the company has added much to the menu over the years, the basics are still the same.
Other, "newer" names, such as Panera (PNRA), Yum Brands (YUM) and Darden (DRI) have also shown great successes over their histories in the public markets, while concept names such as Buffalo Wild Wings (BWLD) have also made a splash.
(CMG), which had a massive run and was a veritable "ten bagger" between late 2008 and early 2012. While it has pulled back substantially in the past year, Chipotle has been the poster child for new restaurant concepts, and the most talked about name in the sector the past few years. It's also a great example of what happens when expectations are too high. This may end up being one of the greats, but it was priced for perfection, and fell about 45% between last April and October.
As a value investor, I'm not wired for the growth stories, or the high multiples that come along with great expectations. I am wired to look for the down and out names that are ignored by the market, exhibit some characteristics that suggest a potential turnaround, and are mispriced (in my opinion, anyway.) While it is a dangerous game to buy down and out restaurant names, I've had some success the past several years with names like Denny's (DENN), Cracker Barrel (CBRL) and Krispy Kreme (KKD). I've also had disappointment with Wendy's (WEN).
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 Plus 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