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3 Solid Stocks to Watch on Steady Growth in Restaurant Sales

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Key Takeaways

  • YUM is highlighted as restaurant sales climb 0.7% in September despite slowing overall retail activity.
  • BJRI benefits as holiday spending and recent Fed rate cuts support strong dining-out trends.
  • LOCO is backed by improved earnings estimates, reflecting momentum as consumers dine out more.

U.S. retail sales slowed in October as higher prices, which were largely due to President Donald Trump’s tariffs, barred consumers from spending freely. Inflation continues to be high, and consumers have been spending cautiously.

However, consumers continued to spend aggressively on dining out amid this uncertainty. Sales at restaurants and drinking places rose in September and are likely to grow further during the ongoing holiday season.  

Given this situation, it would be ideal to invest in restaurant stocks with a strong online presence. We have selected three stocks, namely, Yum China Holdings (YUM - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and El Pollo Loco Holdings, Inc. (LOCO - Free Report) .

These stocks have seen positive earnings estimate revisions in the past 60 days and are set for solid returns.

Restaurant Sales Rise

Sales at food services and drinking places totaled $88.5 billion in September, increasing 0.7% sequentially and 5.7% from year-ago levels, the Commerce Department said last month. This came as retail sales slowed in September, increasing just 0.2% month over month after jumping 1% in August. Restaurant sales are the only services component in the retail sales report.

Retail sales have slowed as consumers tend to spend less owing to higher commodity prices. Part of the rise in prices is being triggered by Trump’s new tariffs, which have raised concerns about a slowing economy.

However, consumers are still spending aggressively on dining out. Investors are worried about a shrinking labor market, but inflation has somewhat eased over the past few months, which saw the Federal Reserve cut interest rates by 25 basis points each in September and October.

Investors are also expecting another quarter percentage point rate cut in December. Markets are pricing in an 87.6% chance of a 25-basis-point rate cut by the Federal Reserve in December, according to the CME FedWatch Tool.

Also, the holiday season has started on a positive note and restaurant sales are likely to get a boost. A rate cut coupled with expectations of higher spending during the holiday season bodes well for the restaurant industry.

3 Restaurant Stocks With Upside

Yum China Holdings

Yum China Holdings operates both company-owned and franchised restaurants. YUMC’s brands include The KFC, Pizza Hut and Taco Bell. The company also owns East Dawning, Little Sheep and COFFii & JOY.

Yum China Holdings’ expected earnings growth rate for the current year is 11.3%. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the past 90 days. YUMC has a Zacks Rank #3 currently.

BJ's Restaurants, Inc.

BJ's Restaurants, Inc. owns and operates a chain of high-end casual dining restaurants in the United States. BJRI’s menu offers a wide range of dining options, including everyday lunch and dinner, special occasions and late-night business.

BJ's Restaurants’ expected earnings growth rate for the current year is 49%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. Currently, BJRI has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

El Pollo Loco Holdings, Inc.

El Pollo Loco Holdings, Inc., through its subsidiary, develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco. LOCO specializes in flame-grilled chicken in a variety of contemporary Mexican-influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla soup, Pollo Bowls and Pollo Salads.

El Pollo Loco Holdings’ expected earnings growth rate for the current year is 6.7%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 60 days. LOCO currently carries a Zacks Rank #1.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


BJ's Restaurants, Inc. (BJRI) - free report >>

Yum! Brands, Inc. (YUM) - free report >>

El Pollo Loco Holdings, Inc. (LOCO) - free report >>

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