While many investors haven’t had a big appetite for restaurant stocks since the pandemic began, there are still some standout companies that could become staples in your portfolio. As people continue feeling more comfortable about dining out again thanks to vaccines, we could see some very strong earnings from the top restaurant stocks throughout the remainder of the year. Keep in mind that some of the most successful companies in the restaurant industry have pivoted to expanding their digital sales, contactless deliveries, and takeout ordering capabilities over the last year.
These strategic moves have not only helped the top restaurant businesses to deal with the pandemic in the short term but have also provided a strong runway for future growth even as things return to normal. We’ve already received a few stellar earnings reports from some of the top names in restaurant stocks, which means it might be time to consider sinking your teeth into the best stocks in the sector.
Here are 3 strong restaurant stocks for investors that are hungry for gains:
1. Domino’s Pizza
Choosing the best restaurant stocks to add for long-term positions can be tricky, particularly since there is so much competition in the industry. With that said, there are some stocks that clearly stand out as market leaders, which is the case with Domino’s Pizza (NYSE:DPZ). It’s the second-largest pizza company in the world and the market leader in the U.S. pizza delivery business, which makes it a great stock to consider adding given how much Americans love their pizza. The company was a huge winner during the pandemic and could be poised to continue gaining market share from smaller pizza restaurants that simply cannot compete with Domino’s rapid delivery services and convenient ordering options.
The company just reported rock-solid Q2 earnings including revenues that were up 12.2% year-over-year and diluted EPS of $3.06. Perhaps what was most impressive about the company’s Q2 numbers was the sales growth, as global retail sales increased by 21.6% year-over-year along with U.S. same-store sales growth rising 3.5%. Keep in mind that the company faced tough comparisons from last year due to the massive demand for pizza with so many people staying home during the pandemic. It's also nice to know that if we see restrictions again in certain areas of the country that are being impacted by the new variant of the virus, investors can count on Domino’s to generate tons of sales given its pandemic-tested business model.
2. Yum! Brands
Another hot restaurant stock for investors to consider at this time is Yum! Brands (NYSE:YUM). The stock is hitting new highs ahead of the company’s Q2 earnings release this week, so it might make sense to wait and see how the market reacts to the report before adding shares. However, it’s clear that the market is currently optimistic about the company’s performance as it bounces back from COVID-19 disruptions. Yum Brands is a major franchisor and licensor of fast-food restaurants, including iconic brands like KFC, Pizza Hut, and Taco Bell. It’s a strong restaurant stock given the company’s global presence and the fact that the majority of the company’s restaurants are franchised, which means that Yum Brands does not have to tie up a lot of capital in owning and operating its restaurants.
Yum Brands is also an intriguing stock at the moment thanks to how the company is moving forward with expanding its digital capabilities. The recent acquisitions of Ticktuck technologies, an omnichannel ordering and marketing platform company, and Kvantum, an AI-based consumer insights and marketing performance analytics business, could pay off in a big way going forward. Finally, the fact that Yum Brands stock offers a 1.63% dividend yield at this time makes it a very appetizing option in restaurant stocks.
3. Chipotle Mexican Grill
This company is the poster child for fast-casual dining businesses and perhaps the single best restaurant stock to own at this time. With an attractive balance sheet, a brand name associated with quality ingredients, and a lot of new restaurants opening this year, Chipotle Mexican Grill (NYSE:CMG) has plenty of positives for investors to consider. Chipotle was a little more prepared for the negative impacts of the pandemic versus its competitors, thanks to its existing food-delivery and takeout options. It has since invested heavily in expanding those options, and now the results are showing up in the company’s earnings.
In Q2, Chipotle Mexican Grill’s revenue increased by 38.7% year-over-year to reach $1.9 billion, and diluted EPS was $6.60, up 2175% year-over-year. Investors should also note how the company’s digital sales grew by 10.5% year-over-year and that digital sales accounted for 48.5% of the company’s sales. It’s quite evident that Chipotle’s robust mobile ordering and delivery platforms are helping the company continue dominating the fast-casual dining segment. Even though the stock has rallied quite a bit following the earnings release it's still a perfect “buy the dip” candidate if you are looking for a best-in-class restaurant stock.