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.
Cracker Barrel ( CBRL), embroiled in an activist fight with Biglari Holdings ( BH) has also been on fire. The company is now trading at an all-time high, after reporting a better than expected fourth quarter last week. CBRL data by YCharts
Ruby Tuesday ( RT) has also had its share of challenges, and this real-estate rich name nearly imploded in 2009. I've been impressed with the newer menu, but that should never be the sole reason to take a position in a restaurant name, given the highly competitive nature of the business, particularly in the casual dining arena. Part of putting consumers in the seats has to do with advertising; we'll see if Ruby Tuesday is successful with its current campaign. RT data by YCharts
Perhaps surprisingly, the best performing restaurant stock year-to-date (market cap greater than $400 million) has been Popeye's chicken parent AFC Enterprises ( AFCE), which is up 70% year to date. Among the worst performers, essentially flat year to date is phenomenon Chipotle ( CMG), which was up nearly nine-fold between early 2009 and this past April. AFCE data by YCharts
There has been a lot of money made in this sector over the past three or four years, but it appears as though the rules may have changed. Despite the bad economic conditions during most, if not all of that period, consumers have not seemed to give up eating out. I do admit, however, that the specter of rising commodity costs still concerns me for the sector. At the time of publication, the author was long DENN, RT and BH. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.