When investing in the stock market, it makes sense to always look for businesses that have seen the ups and downs and thrived. Such companies understand market volatility and they are always ready with a strategy to bounce back. Some of the top American businesses have managed to rebound from the pandemic and inflationary pressures. These businesses have established themselves as pioneers in the industry and continue to navigate through the good and bad times.
If you are a low-risk investor like me, investing in these classic American businesses will ensure steady growth and returns. These are three restaurant stocks to buy and they have been around for as long as I can remember, building a strong brand name. The stocks have seen market volatility but have the potential to bounce back and will continue rewarding shareholders. Let’s take a look at them in detail.
McDonald’s (MCD)
If you are ready to take a bite of the massive burger industry, McDonald’s (NYSE: MCD) is a solid choice for the long term. The stock hasn’t had a good 2024 and is down 2% year-to-date but it is a strong business to own. Trading for $289, the stock isn’t cheap and is very close to the 52-week high of $302. The stock has seen a dip due to the inflationary pressures and a dip in consumer spending. Consumers are being careful about every dollar they spend and this has impacted McDonald’s business.
While the company saw an improvement in revenue and earnings for the second quarter, it did not meet investor expectations. It reported earnings of $6.49 billion and an EPS of $2.97. The fast-food giant saw a drop in same-store sales for the first time since 2020. Management is looking at new ways to lure diners and they have introduced value meals which was extended after seeing an improvement in traffic.
Investors need to remember that McDonald’s is a solid franchise business and manages to keep the operating costs low while ensuring steady income through royalty. This is what sets it apart from other restaurant stocks. About 95% of its restaurants are franchises which ensures royalty income, no matter the economic situation.
With an anticipated rate cut, we could see an improvement in consumer spending over the coming quarters and this will boost McDonald’s revenue. If you are a dividend investor, you’ll also enjoy its dividend yield of 2.31% and it boasts a history of increasing dividends for 43 consecutive years. For the long haul, McDonald’s is a solid business to own.
Chipotle Mexican Grill (CMG)
The recent 50-for-1 stock split has made Chipotle Mexican Grill (NYSE:CMG) stock affordable for investors. Trading at $56 today, the stock is up 25% YTD and over 200% in the past five years. The market is worried about the future of the company after Starbucks (NASDAQ: SBUX) took its CEO but I think Chipotle is a very strong business and this move will not impact the brand or its fundamentals. While CEO Brian Niccol managed to turn around Chipotle’s business and led it to strong results, he left the company in good shape with an ideal marketing strategy and a business structure that will help the business grow.
Fundamentally, Chipotle has performed flawlessly. In the second quarter, it saw a revenue of $3 billion, an 18% year-over-year jump, and the EPS soared 32% YOY to $0.33. Its comparable restaurant sales jumped 11.1% which shows that despite lower consumer spending, Chipotle continues to remain a top choice. It opened 52 company-operated restaurants in the quarter in addition to an internationally licensed restaurant.
Chipotle has expanded its mobile app and is using digital advertising to reach out to consumers. It has also managed to raise prices to counter inflation and this has not impacted the sales; showing that Chipotle has pricing power in the restaurant industry. The loss of an exceptional CEO can be disappointing but that will not bring down an entire business. I think Chipotle stock will be able to maintain the momentum and continue seeing higher revenue numbers.
Several restaurant companies reported a dip in sales for the second quarter and this is where Chipotle shined brighter. It reported an exceptional quarter despite macroeconomic challenges. An excellent business, Chipotle is a long-term buy-and-hold.
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Shake Shack
Shake Shack (NYSE:SHAK) is an incredible fast food stock with an appealing menu. The company offers an ideal combination of casual and fine dining. Known for using the finest quality ingredients, Shake Shack continues to win consumer trust. In the second quarter, the company saw a 16.4% YOY jump in revenue to $316.5 million and a 4% improvement in same-shack sales. Out of the total revenue, $305.5 million came from Shack sales while the remaining was from licensing. A 16.4% jump in revenue is as good as an 18% jump in Chipotle’s revenue.
To remain relevant to the changing user preferences, the company has introduced drive-thru options and combo meals. For the full year, the management is looking for a 14% to 15% rise in revenue. Exchanging hands for $105, the stock is up 44% YTD and 52% in the past 12 months. It is very close to the 52-week high of $111 and could keep moving higher.
Shake Shack opened about 80 new locations in 2023 and most of them are owned by the company. As it continues the same momentum, we could see the revenue steadily growing at double-digits. The company is profitable, has reported impressive growth in a high inflationary period, and is on an upward rally. I think this is a classic American business and one of the best stocks to buy before it hits a new 52-week high in the coming weeks.
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