Investing

Restaurant Stocks to Buy That Have Crushed the S&P 500 in 2013

Restaurants wrapped up another strong quarter of stock performance in the second quarter, with the average stock up 13%, compared to the S&P 500 gain of 2%. So far in 2013, restaurant stocks are now up 29% (vs. 13% for the S&P), led by smaller cap names. Every stock that the analysts at Deutsche Bank A.G. (NYSE: DB) cover is positive for the year. Gradual macro recovery, healthy cash flow and moderating food inflation continue to provide a solid underpinning for restaurant stocks.

While relative performance in the near term may be choppy, the solid fundamentals benefiting the sector will stay intact as long as there is a gradual improvement in the overall economy. More disposable income will equal more gains for restaurant stocks. Here are the top names to buy Deutsche Bank now.

McDonald’s Corp. (NYSE: MCD) is the top stock to buy in the sector at Deutsche Bank. The iconic fast-food giant actually has underperformed the overall sector, and that bodes well for investors entering the stock now. Analysts also expect a dividend increase in the fall from this top name. Deutsche Bank has a $110 price target. The Thomson/First Call estimate is $108. Investors receive a solid 3.1% dividend.

Buffalo Wild Wings Inc. (NASDAQ: BWLD) has been on fire this year and hit a 52-week high recently. Offering a great menu and continuous in-store innovations, it is no accident that these restaurants has been able to mix sports-fans and families in the same environment. The company is also on track to open store number 1,000 in 2013. Deutsche Bank has a $105 price target, and the consensus target is $105 as well.

Del Frisco’s Restaurant Group Inc. (NASDAQ: DFRG) operates three distinct but similar restaurant concepts: Del Frisco’s Double Eagle Steakhouse, Del Frisco’s Grille and Sullivan’s Steakhouse. Del Frisco’s is one of the premier fine dining steakhouses in the United States, featuring prime beef and award-winning wine selections, with 10 locations across eight states. The average check is $100. First-quarter revenue increased by $4 million, or 14.1%, to $32.3 million. Same-store sales increased by 1.9% (the 13th consecutive quarterly increase). Deutsche Bank has a $23 target on this top small cap name. The consensus price objective is $21.50.

Panera Bread Co. (NASDAQ: PNRA) has delighted shareholders and tormented short sellers over the years. Panera reported a 34% earnings increase and a 15% rise in revenue in its most recent quarter. In fact, the company regularly sees earnings growth of more than 20% in a quarter, making it seem like it is worth its cost, which many on Wall Street will argue is expensive. Deutsche Bank has a $200 price objective for the stock, while the consensus is at $201.

Starbucks Corp. (NASDAQ: SBUX) added 590 net new stores globally in just one quarter. Though 337 of those were Teavana stores, the company still added 253 Starbucks locations in its second quarter of 2013. Starbucks will not be slowing store growth any time soon. The company plans to quadruple its 2012 footprint of 500 locations in China by 2015. It plans to open an additional 1,500 locations in China by 2015, and 4,000 stores in the broader China and Asia-Pacific region by the end of the year. Deutsche Bank has a $71 target on this top name, and the consensus target is at $69. Investors are paid a 1.3% dividend.

Again, the key for all of the stocks to buy are increases in disposable income. Most equity strategists and economists around Wall Street are reasonably bullish on the domestic economy for the rest of the year. If things really pick up, you may see these stocks continue their dominance well into next year.

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