Use Growth Rules to Manage Restaurant Stocks

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Money flows to places with growth. Money does not care whether the growth is ephemeral. It only cares that it is current and seems very real.

That's why I won't bet against any industry that has growth right now, even if it is an industry that is as fragile as the

restaurant industry or the fashion industry, both of which have had more than their fair share of winners.

Understand, though, if you are going to play the "unconventional explosive growth" game, you are going to have to learn how to sell.

Take

Panera

(PNRA)

, the bread bakery chain. It has a terrific reputation, and frankly, I love to go there with my wife on our night out once a week. We go there because it is next to her health club, and I can swing by it after "America Now." We can get nice salads for a reasonable price and catch up on the day. We are not alone. I see many of my neighborhood friends in Panera. It is a terrific place. (And it just announced a 2-for-1 split.)

In fact, it is so great it reminds me of Au Bon Pain. For those of you who have been to one of those lately, I know it is hard to believe that Au Bon Pain was once a great growth company like Panera. It was expanding rapidly from its Boston base, and Peter Lynch, the Fidelity great, used to talk it up everywhere. (That was before chat rooms, when people were praised for talking about stocks instead of being hounded as if they were crooked infidels.)

Well, Au Bon Pain worked for a long time, and it was a terrific stock. Until it overexpanded, hit a flat patch, then fizzled and almost disappeared. That's pretty much the life cycle of a restaurant stock if it stumbles -- and almost all of them stumble at some point. (Which is why

Herb is so right to focus on the group.)

The lesson here, by the way, wasn't that you should never have bought Au Bon Pain because it failed to become the next

McDonald's

(MCD) - Get Report

. The lesson was that you could own it, do homework on it, stay current on it and if it faltered, you could sell it and make some good money.

Of course, this notion flies in the face of "buy and hold," but as I have said countless times,

buy and hold is totally discredited. What matters is buying and holding quality stocks that won't let you down. And to do that, you need to buy and do homework.

That's why I say "enjoy the ride" on stocks like the restaurant stocks, and don't get greedy. Take some off the table if you have a big win. Take it all of the table when they start faltering. But understand that right now, they do have growth, and growth is awful hard to come by, given all of the growth funds out there and how few tech stocks, once their sole sustenance, have the growth criteria needed to be kept by these managers.

Random musings:

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Bristol-Myers Squibb

(BMY) - Get Report

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made.

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