Restaurant stock year in review: The right, the wrong and the lessons learned

Accurately predicting the future with any regularity remains impossible. That applies to the market and everything else, and it's true for investors, as well as reporters.

We all know though that only with the benefit of hindsight can we say how any of our fortune-telling actually worked out. So with the end of 2014 near, and in the interest of accountability, I decided to review some of the positions I'd taken throughout this year to see where I was right and where I was wrong on the restaurant stocks, the group I write about most. Doing so turned up a few highlights, a few lowlights and a couple of concepts to never forget.

I started the year saying the restaurants, up five years in a row, would slow down. Considering a large group I track rose more than 50% last year, on average, that admittedly wasn't a difficult stand to take. It has happened. But as the year progressed, I began to figure the restaurants would not only gain less, but be negative for 2014. At several points, including through the first nine months of the year, they in fact were down, and by early October I'd seen enough to say the rally was done -- they wouldn’t have time to cover the lost ground.

It took just over a month for that to be completely off. Consumer discretionary stocks surged, and restaurants reversed, turning positive for the year.

What happened to solve my overconfidence issue? To begin, the market kept rallying. And at least some of the pressured restaurant stocks appeared overdue to catch up, especially with the group's latest earnings solid enough. At the same time, broader consumer spending trends were getting better, and restaurant visitor counts were improving as gasoline prices got less burdensome. Meanwhile, the outlook for dining establishments in 2015 has brightened, Nation's Restaurant News says.

Lesson 1: Continuing to go against the market direction can be a bad idea. The market is powerful, maintaining great influence over individual stocks. And it's smarter than you. Ever heard a similar notion before?

Lesson 2: You can be right for a time, then you're wrong. And that can happen quickly. My own entrenched views, "right" for a while, weren't anymore. Failure to appreciate a changing environment is trouble.

Three specific stocks stood out amid the sector's rebound to reinforce all this. When I covered chicken seller Popeyes (PLKI) in August, it was up 1.6% year-to-date, trading around $39. Because of its ongoing rally, I decided investors probably were stepping away. But they did no such thing. Now it's up almost 44% and above $55.

With Jack in the Box (JACK), profiled in June, I noted it had climbed 180% since the beginning of 2012. I said that while there was much to like about the burger and sandwich company, which also owns Qdoba Mexican Grill, it may have advanced too far for investors. It was about $59 then. Now it's $75.

Similar with Sonic (SONC), the drive-in hamburger chain. The stock rose 94% in 2013, and after a big post-earnings rise in March, I said it may have gotten too pricey above $23. These days it's past $27.

Smarter takes

I did get a few right. Zoe's Kitchen (ZOES) completed its IPO in April, and I had thought the Mediterranean-style fast-casual chain could get to the mid-$20s with little trouble based on how the market would perceive it. Here, I actually was too conservative. The stock went to that level almost immediately after pricing at $15. It's stayed elevated, and now trades around $32.

Not so for all IPOs. In May, bake-at-home pizza maker Papa Murphy's (FRSH) went public. In this case I indicated traders might be less inclined to go for these shares, and that was true. It still is. The IPO priced at $11, and the stock has gotten only as high as $12.10. It's now at $10.

In July, sports-bar operator Buffalo Wild Wings (BWLD) slumped after its earnings report on worries about growth rates and wing prices. Trading at $143 then, I said investors likely would be back when they remembered the good here. The stock currently trades 18% higher, at around $170.

A couple of months later, I speculated as to why Pizza Hut might get involved in the fast-casual, craft-pizza arena. In November, the Yum Brands (YUM) division did announce a major brand update that included providing artisan-style pizza options.

Following the announced merger of Burger King (BKW) and Tim Hortons (THI) in August, questions arose as to who else may get acquired. Based on their businesses and financials, I ended up with a list of seven potential buyout candidates. Einstein Noah was one, and about a month later the bakery operator indeed was bought. None of the others have been, so I was partially right.

Then there was McDonald's (MCD), which I figured could only fall so low before buyers arrived. I detailed some of the stock's strengths in September, saying that even without tremendous growth, the home of the Big Mac retains many favorable aspects that Wall Street appreciates. The shares did decline a bit further after the article to $89, but since then they've rallied to $95.

In fairness, it has to be acknowledged that the lift of the broad market mentioned earlier helps me look smart for the stocks on which I was more positive. So let's close with Lesson 3: Although it's not always clear which is which, try not to mistake luck for brilliance. As soon as you're certain you've got it all figured out, remember you don't.