Restaurant Stocks Secret Weapon to Survive the Shutdown

Restaurant Stocks Secret Weapon to Survive the Shutdown

Leon Noble

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Investing Education Academy
Leon Noble

In keeping with our investment thesis of focusing on the industries beaten down by COVID-19 in this post were looking at restaurant operators; specifically:

  • Yum Brands (Taco Bell, KFC, Pizza Hut)
  • Darden Restaurants (Olive Garden, Longhorn Steakhouse, Cheddar’s)
  • Restaurant Brands (Burger King, Tim Hortons, Popeyes)

These companies are like mini ETFs because they own multiple restaurants under a single stock symbol. Each company’s stock dropped 50-60% from their recent highs but have recovered some with the recent bounce in the market.

In this time of social distancing, restaurants, which require people to gather, you’d think would be completely out of business. However, unlike other mass-gathering businesses restaurants have a secret weapon…their drive-thru business. Also, with many not receiving a paycheck and the need to stretch every dollar as far as possible, Americans are turning to drive-thru’s as a way to put inexpensive food on the table.

A little known but VERY important fact is the big chains owned by these 3 companies get roughly 70% of their revenue from their drive-thru business. So while every business will take a hit during the shutdown restaurants that have drive-thru business stand a better chance of weathering this storm then other mass-gathering businesses. On our FB Live this week we’ll reveal which of the 3 stocks mentioned made our stock pick of the week.

 

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