Three "Appetizing" Food Sellers are on Sale Right Now: Here's How to Profit from Record-High Demand, Extreme Brand Saturation and 1,050 New Stores… An Investment U White Paper Report
by Alexander Wissel, Investment U Americans are getting more of their meals from restaurants than ever before these days.
The National Restaurant Association reports that 40% of the average household budget goes to meals outside the home right now. That's up from 25% in 1955… and expected to increase to 50% within the next decade. The pace shows no signs of slowing, either… According to the Institute of Food Technologists, Americans now cook less than one-third of their own meals. And this is big business… The restaurant and specialty eatery sectors are enormous. In the United States alone, more than 945,000 restaurants employ over 13.1 million people. The thing is, these two sectors have been battered recently with increased food costs and negative market performance over the last year. As a group, they've fallen 33% in the last 12 months. That's about to change… Three fast food stocks in particular are poised for a major rebound, and one is bucking the trend completely. Fast Food Stocks on a Fast Track to International Profits YUM Brands (NYSE: YUM) is a strong company in a sector without strength. Its well-known brand names you will know as Pizza Hut, Taco Bell and Kentucky Fried Chicken. It also operates the brands Long John Silvers and A&W.
YUM has pioneered and leads the industry in concept restaurants called multi-branding. Putting more than one of its brand-name franchises under the same roof increases the company's leverage. Competing against the burger franchises, this multifaceted approach offers better use of space and superior brand penetration. The company operates 34,000 locations in more than 100 countries. And YUM's growth days are far from over…. The company opened 785 new restaurants last year, which makes it the 7th year in a row they've opened more than 700 new locations. This year won't be shabby, either. Expansion into international markets is increasing its brand presence overseas. And agreements to aggressively expand into the Russian market (and its 140 million consumers) will pale in comparison as they dominate China. Currently the leader in Western fast-food restaurants in China, YUM plans to open an additional 425 new locations next year alone. And the market likes what YUM's been up to. Shares have climbed 91% over the last four years, now trading around $40. (The Oxford Club recommended YUM at $20.14. Learn more about the Club.) Expect this trend to continue… - The company has engineered a 70% Return on Equity over the last 12 months.
- Earnings per share have risen on average 13% every year for the past 8 years.
- Operating profit in its China division alone surged by 30% last year.
- Management has bought back more than 100 million shares in the last four years.
Incidentally, institutions like YUM, too. Right now, money managers own 85% of shares outstanding. And they're getting paid to do so. YUM dishes out a respectable 1.5% dividend. A Caffeinated Turnaround Play Starbucks Corp (Nasdaq: SBUX) roasts, brews, and sells premium coffee and coffee branded items such as ice cream and bottle drinks. Starbucks is the champion of the premium coffee industry. To be sure, no clear competitors have been able to achieve as much brand saturation and awareness. Starbucks has close to 16,000 locations worldwide, making it twice as large as its closest competitor - Dunkin' Donuts, with roughly 8,000 franchises. The thing is, Starbucks was seen as alienating its support base and being "out of touch" with the franchises as their store number increased. You started seeing the Starbucks logo on anything and everything. Its coffee shops started showing up in groceries and bookstores. The power of the brand became diluted and customers started questioning why they should pay premium prices for premium products. The skid has stopped, however, and the brand power is coming back. Starbucks began an aggressive campaign to win back its customers. Its rollout of a customer feedback site, which was originally panned by critics, is getting another look as tens of thousands of loyal customers send ideas and comments in. The recent return of company founder Howard Schultz shows that this company is serious about its turn-around… and is serious about getting its customers back into promoting the brand. Yet shares have fallen 45% in the last 12 months. Wall Street has oversold this stock to levels not seen since 2005. But business is starting to look up again… - Starbucks plans to open an additional 525 stores in 2008.
- Sales increased 17% to $2.8 billion, in the first quarter of this year.
- Earnings per share are expected to increase 33% this year.
- Coffee is still the #1 breakfast food consumed by 53% of Americans - every day.
As this company begins to rein in its brand, improve product quality, and increase customer satisfaction, you will see its profitability charge back up. Expect shares to follows suit. Bread is Back Making "Dough" Panera Bread Company (Nasdaq: PNRA) operates a chain of casual Bakery-Café's. The company has been recovering from the fallout of the Atkins' diet craze that purported that breads and carbohydrates were unhealthy and caused obesity. But Atkins is on its way out… and Panera is on its way back in. The huge popularity this company originally saw is seeing a comeback from varied groups such as retirees, new mothers, and book groups that use it for daytime gathering places. Working professionals and customers who appreciate the artesian breads and lunch selections frequent the lunch rush. Panera is seen as higher-end but affordable. And business is good… After bottoming out last year, earnings are again on the rise. Net income rose by almost 50% last quarter. The stock price has reflected the improved market conditions for Panera this year, moving from lows of $30.60 to a current price of $41.40. That's a 35% move since January 1st. Its long-term growth prospects look good, too. - Panera will open an additional 100 locations in 2008 and an estimate 120 locations in 2009.
- It's the largest competitor in the bakery café segment and its 1,167 stores dominate the next closest player, Au Bon Pain, with 230.
- Panera has been successful in its plan to increase prices 5% to offset the rising cost of wheat supplies.
- Management is rolling out a new line of breakfast sandwiches, catering to the 61% of Americans who eat breakfast on the run every day.
Note: Panera's turnaround will be masked by higher goods prices. As commodity prices start to fall, that buffer of higher prices will translate into an enormous increase in profit margins. In short, the restaurant and specialty eatery sectors are positioned to take advantage of ever increasing demand. With attractive prices, strong product lines, the strength of their brands, and customer loyalty, Starbucks, Panera, and YUM Brands are well placed for long-term gains. Good investing, Alexander Wissel To get a steady stream of companies with above average revenue growth and accelerating earnings, consider joining The Oxford Club, our premium service. The independent Hulbert Financial digest ranks the Club 3rd in the nation based on 5-year, risk-adjusted return. You'll get immediate access to all of our growth-stock recommendations. Learn more. Alexander Wissel, a Financial Editor for Investment U, is a former Licensed Financial Advisor and Independent Insurance Agent, where he specialized in research and investor education. Alex's fundamental research approach is focused primarily on undervalued U.S. equities with significant short-term capital appreciation potential. Copyright 2008, Investment U, 105 W. Monument St., Baltimore, MD 21201 All rights reserved. No part of this report may be reproduced or placed on any electronic medium without written permission from the publisher. Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. Premium Content
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