4 Top Restaurant Stocks to Buy With Big Momentum

By Lee Jackson Published Jun 18, 10:20AM EDT

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When you think of momentum stocks, probably the last thing that pops into your mind is restaurant stocks. However, there are four companies in the industry that have traded that way for some time, and if the numbers from May are any indication, they will continue to do so. In a new research report, the analysts at Baird say that while final May data from the firm’s restaurant survey wasn’t quite as impressive as the very solid April numbers, it was more than good enough to be very positive for the top stocks to buy.

The Baird team reports that while the May comparison numbers tracked slightly below April, they still came in 4% higher, reflecting the slight increase in gasoline prices and flooding in Texas that slowed business. The firm remains very positive on the industry, and we screened the list of stocks to buy and found four companies that are literally trading like momentum stocks and should continue to.

Chipotle Mexican Grill

This company continues to astound shareholders and short sellers alike. Chipotle Mexican Grill Inc. (NYSE: CMG) has more than 1,500 restaurants worldwide and is planning on opening up to 195 new restaurants this year. Like many companies, Chipotle has also spoken favorably of the idea of increasing its stock buyback program, which speaks to the company’s confidence in the growth of its business.

Chipotle has revealed that it is testing a new tortilla with super-simple ingredients in the company’s ongoing effort to remain the burrito leader. The idea is to craft a tortilla that mixes old-school simplicity with new-school mass marketing. The main impetus behind the move is getting all preservative and additives out of the tortilla, a nod to the pledge the company took to go GMO free.

The Baird price target for the stock is a staggering $800, while the Thomson/First Call consensus number is at a still astronomic $734.85. The stock closed Wednesday at $606.84 per share.

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Dunkin’ Brands

The doughnut and coffee chain is expanding at a fast and furious pace, and that looks to continue. Dunkin’ Brands Group Inc. (NASDAQ: DNKN) continues to roll-out its huge store expansion and returned to California last year for the first time since 2002. There are currently roughly 7,750 Dunkin’ Donuts restaurants in the United States and almost 3,160 elsewhere. The company has added to its menus and continues to post solid revenues each quarter.

Dunkin’ Donuts remains a market leader in the hot regular/decaf/flavored coffee, iced coffee, doughnut, bagel and muffin categories. Dunkin’ Donuts has earned the top ranking for customer loyalty in the coffee category by Brand Keys for nine years running. The rapid expansion at home and abroad could buoy sales for years to come.

Investors do receive a 2% dividend, and Baird has a $58 price target on the stock. The consensus target stands at $53.70. Dunkin’ shares closed Wednesday at $53.44.

Panera Bread

This company is also luring customers looking for healthy offerings. Panera Bread Co. (NASDAQ: PNRA) has been another momentum player’s delight over the past couple of years, and in the process mauled most of the short sellers. It and a host of other top restaurant chains are focusing on providing customers with food made with only the best ingredients, a winning strategy for keeping existing customers and adding new ones.

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In May, Panera said it had removed a “no-no” list of artificial ingredients from 85% of its menu, although it had not yet reformulated some crucial items, like salad croutons and bacon. Its goal is to be artificial-ingredient free by 2016. This is crucial to drive store traffic as American palettes continue to become more discriminating.

The Baird price target for the stock is set at $200, and the consensus is at $186.83. Panera closed Wednesday at $182.61.

Starbucks

This company is the original when it comes to momentum restaurant stocks. Starbucks Corp. (NASDAQ: SBUX) dominates the retail coffee business in the United States, and the international growth is helping to boost earnings. In fact, the brand has become so ubiquitous that consumers often just say “Let’s grab a Starbucks.” Despite a pricing point that is higher than others, the company continues to add new items at its stores that have been received well.

The company recently announced that it will close all of its La Boulange cafes by the end of September. The company said there has been strong growth in food sales since the $100 million acquisition three years ago, but that running the 23 La Boulange restaurants, which are mostly found in San Francisco, no longer makes sense. The products will still be available in Starbucks locations.

Starbucks investors are paid a 1.2% dividend. Baird’s $58 target price is higher than the consensus target of $55. Starbucks closed Thursday at $53.24 per share.

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Clearly the rich are getting richer when it comes to the top restaurant stocks on Wall Street. While some are very pricey, and could get pummeled in a swift market sell-off, they offer investors looking for solid growth good franchises to own in a medium-risk equity portfolio.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.