Ignore Trade War Tit for Tat With These 4 Restaurant Stocks
On Jun 15, President Donald Trump reignited fears of a trade war by announcing fresh tariffs on $50 billion worth of Chinese products. However, the fears were limited to some extent, with markets paring the losses by the end of the day. Given this scenario, there are still a few sectors with domestic focus that seem to be safe from the ongoing U.S.-China trade tussle.
Foremost among these is the restaurant space, which so far seems to be unaffected by the tariffs, making its stocks safe bets. Moreover, a favorable economy scenario, robust consumer confidence, high wages, a low unemployment rate and high retail sales seems to have reinstated investors’ confidence.
Trade War Fears Unsettle Markets
Trade war fears have been weighing on investors for quite some time now. On Friday, fears once again escalated after the United States announced that it will be imposing tariffs worth $50 billion on goods imported from China. Consequently, China too imposed retaliatory tariffs of $50 billion on U.S. goods.
Initially, investors panicked, leading to indexes moving significantly lower. However, investors shed their fears to some extent in the later part of the trading session, with markets paring the losses. Understandably, trade war fears have made markets volatile for quite some time with investors often undecided.
Given this scenario, companies with a domestic focus can be considered as holding promise. U.S. restaurants have been showing signs of steady growth, with the outlook for the restaurant industry looking strong for the rest of 2018.
Restaurant Industry to Grow on Higher Sales
According to TDn2K, restaurant sales were flat in May but analysts feel that it’s not bad as it shows industry-wide recovery. That said, according to the report, chain store comparable sales gained over the rolling three-month period, increasing 0.8%. The West witnessed the strongest restaurant sales in the United States in May, increasing 2.8%.
The U.S. Restaurant industry had generated revenues of $799 billion in 2017, increasing 4.3% from 2016, according to the National Restaurant Association (NRA). This also marks the eighth consecutive year of real growth in restaurant sales.
Moreover, 2018 had an appetizing start for U.S. restaurants, with positive momentum in sales. According to The Restaurant Success in 2018 Industry Report, 89% of restaurateurs are optimistic about their restaurant's sales in 2018.
Favorable Economic Scenario
The U.S. economy is stepping up, which is a good sign for the restaurant industry. Higher wages, a low jobless rate and upbeat consumer confidence, all indicate at a bullish economy. Higher wages mean more money in the hands of people, which definitely is a positive sign for this industry.
Also, retail sales jumped 0.8% in May and 5.9% on a year-over-year basis. Moreover, U.S. consumer confidence rose in the beginning of June. The consumer sentiment index jumped to 99.3 in June. Also, the Empire State Manufacturing Survey rose 4.9% in June to a reading of 25. This is also the highest reading since October 2017. This positive sentiment is definitely going to encourage consumers to dine out more.
Our Choices
Trade war fears certainly have made investors jittery but they seem to be regaining their confidence on a bullish economic outlook and positive economic data.
Naturally, these U.S. restaurants that have a domestic focus and are showing signs of growth for the past few years look delectable. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
BJ's Restaurants, Inc. BJRI owns and operates the restaurants, located across the United States. BJ's Restaurants has an expected earnings growth of 41.8% for the current year. The Zacks Consensus Estimate for the current year has improved 66.7% over the last 60 days. Moreover, the stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Wingstop Inc. WING franchises and operates restaurants. It offers cooked-to-order, hand-sauced and tossed chicken wings.
Wingstop has a Zacks Rank #1. For the current year, the company has an expected earnings growth of 13.5% and the Zacks Consensus Estimate has improved 3.8% over the last 30 days.
DineEquity, Inc DIN is a full-service dining company. It operates and franchises restaurants under both the Applebee's Neighborhood Grill & Bar and IHOP brands.
DineEquity has a Zacks Rank #2 (Buy).The company has an expected earnings growth of 23.1% for the current year. Moreover, the Zacks Consensus Estimate for the current year has improved 0.4% over the last 60 days.
Denny's Corporation DENN formerly Advantica Restaurant Group, Inc., is one of the largest restaurant companies, operating moderately priced restaurants: Denny's, Hardee's, Quincy's, El Pollo Loco, Coco's and Carrows.
Denny's Corporation has a Zacks Rank #2. The company has expected earnings growth of 15.5% for the current year. Over the last 60 days, the Zacks Consensus Estimate for the current year has improved by 17.5%.
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