December 11th, 2021
The Restaurant Chains I’m Investing in NOW
Dear Rebel Investor,
I recently completed a six-month odyssey.
I drove through Northern California, Nevada, Utah, Wyoming, South Dakota and the Midwest until I reached Cleveland, Ohio – the place of my birth.
Then I spent a few weeks in Tennessee and Florida, Texas, New Mexico, Arizona, and finally up home to Northern California.
The trip also revealed something that gave me an interesting investment idea.
People are in a money-spending mood
One night at a right-by-the-beach restaurant (Stinky’s Fish Camp in Santa Rosa Beach, Florida), I had to wait 20 minutes or so for a seat at the bar.
(Forget about getting a table that night… people were lined up outside waiting over an hour for one).
When my seat finally opened up, I decided to satisfy my hankering for fish and chips, so I ordered the local grouper.
It cost me $35.
And with the three beers ($9 each) and tip, I was in for over $60 for a meal that would’ve cost half that in many other parts of the country.
I’ll tell you, Stinky’s must be making money hand over fist – every night I was there it was packed to the gills (pun intended).
It was the same at virtually every touristy town I visited – all the restaurants were crowded with people who couldn’t seem to spend their money fast enough.
Americans are going out to eat and socialize with a vengeance
They’re dying to make up for lost social time from the pandemic lockdowns.
That’s why I think it’s worth looking at investments that should profit from this development (which I expect to continue).
Yes… I know… restaurant stocks took a beating in November.
- Chipotle Mexican Grill (NYSE: CMG) dropped 15% from Nov. 10 to Dec. 1
- Darden (NYSE: DRI) lost 10% during the same time
- And the Cheesecake Factory (Nasdaq: CAKE) took an 18% hit
But these and most other restaurant stocks have recovered much of their November losses.
And I suspect they’ll continue to uptrend.
(Let’s face it – Americans LOVE to eat out.)
So which individual restaurant stocks to play?
The problem with investing in a single restaurant stock is you risk loss due to bad management or other fundamental factors.
But there is a restaurant-based ETF I think is worth a look
It’s called AdvisorShares Restaurant ETF (NYSEarca: EATZ).
For starters, it’s the only ETF dedicated solely to the restaurant industry.
And it provides an investment in multiple restaurants so you’re not beholden to the fate of a single establishment.
It’s also worth considering that…
- Dining out has been a long-term trend that’s more than doubled since 1955
- Many of the largest U.S. based restaurant chains are growing internationally (for example, China has more KFC outlets than the U.S.)
- There’s tons of pent-up demand to dine out from the pandemic restrictions
The EATZ portfolio includes a wide variety of eateries that spread things around
As of this writing, it includes:
- Chuy’s Holdings (NSDQ: CHUY), which operates 92 restaurants in 17 states
- Texas Roadhouse (NSDQ: TXRH), which runs 537 domestic restaurants (as well as some international eateries)
- Ruth’s Hospitality Group (NSDQ: RUTH), the company that operates the fine dining chain Ruth’s Chris Steak House
- Jack in the box, Inc. (Nasdaq: JACK), a fast-food titan that operates and franchises over 2,200 stores
- Domino’s Pizza, Inc. (NYSE: DPZ), which has 2,949 pizza joints around the world
As you can see, the EATZ portfolio covers the gamut of dining options – everything from high-profile fast-food restaurants to swanky establishments.
And while EATZ followed the recent restaurant industry beatdown (losing over 10% during the second half of November), it’s been rebounding a little.
I think there’s a good chance that uptick will continue as Americans emerge from a lockdown mindset and venture out to eat and drink more often.
Of course, another lockdown could throw my thesis out the window.
But I doubt that’ll happen.
I just think the horrific economic impact of another lockdown would be too much for the Biden Administration to bear.
Anyway, that’s it for this missive.
All this writing’s making me hungry.
Until next time,
Contributing Editor, Dear Retail Investors
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