This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Restaurants Still Strong, Unbowed After Recession

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 - Get Report) 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.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AFCE $52.44 0.00%
CBRL $139.99 0.06%
CMG $686.93 0.44%
DENN $11.73 1.56%
RT $7.41 2.77%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs