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How to Invest in Food Stocks: Restaurants

03/07/08 - 05:32 PM EST

DPZ MCD (Action Alerts PLUS PICK) SBUX

Scott Rothbort
Scott Rothbort

Casual Dining Restaurants (CDRs). These establishments are known for their family-friendly menus and atmosphere. CDRs have the following characteristics:

  • Diners are serviced at assigned tables.

  • The ambience is family-themed and friendly.

  • Menus are varied and more comprehensive than that of QSRs.

  • Many CDRs have a central theme or common food selection (like Asian, Mexican, Italian, steak or seafood).

  • Menu prices are moderate but vary amongst QSRs and amongst menu items.

  • Alcoholic beverages are also served.

    • The most popular QSR chains are:

    Casual Dining Restaurants (CDRs)
    Company Ticker Symbol Price
    3/4/2008    		 2007
    EPS    		 2008
    Est. EPS
    Darden DRI 31.14 2.53 2.72
    Brinker International EAT 18.05 1.76 1.42
    Ruby Tuesday RT 6.80 1.66 0.45
    IHOP IHP 45.21 2.51 2.46
    McCormick & Schmicks MSSR 10.89 0.91 0.69
    Cheescake Factory CAKE 20.59 1.03 1.15
    PF Chang's China Bistro PFCB 27.67 1.36 1.35
    Buffalo Wild Wings BWLD 22.08 1.10 1.33
    Red Robin Gourmet RRGB 34.02 1.98 2.14
    Source: Yahoo! Finance

    Premium Dining Restaurants (PDRs). These restaurants are like CDRs with some subtle differences:

  • Food quality and menu variety is of higher quality. The menus tend to be oriented toward premium cuts of beef and steak and high-end seafood.

  • More luxurious ambience.

  • Attract adult or business diners.

    • The most popular PDR chains are:

    Premium Dining Restaurants (PDRs)
    Company SYMBOL Price
    3/4/2008    		 2007
    EPS    		 2008
    Est. EPS
    Ruth's Chris RUTH 7.04 0.78 0.68
    Morton's MRT 7.86 0.75 0.74
    Source: Yahoo! Finance

    The companies listed here are far from exhaustive and I suggest you do some homework to spot your own investment opportunities in the restaurant sector.

    With rising ingredient costs and a slowing domestic economic climate, we are currently in a very difficult environment for investing in restaurants. However, I believe that late this spring or early this summer excellent value value-stock investment opportunities will begin to materialize. This window of opportunity should give you ample time to do more research and identify some restaurant stocks to be placed on your investment menu.

    Currently, the only restaurant that I own is McDonald's MCD. McDonald's has been able to weather the domestic slowdown by attracting more diners with expanded hours of operation, creative menu additions and the introduction of premium coffee -- to the detriment of the pricey Starbucks SBUX. In addition, McDonald's is growing overseas, particularly in China.




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    At the time of publication, Rothbort was long MCD, although positions can change at any time.

    Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele.

    Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

    Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

    For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.

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