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Strong Economy Buoys Dining Out: 5 Stocks for Juicy Gains

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The carnage on Wall Street isn’t over. But on Main Street, good times are here to stay. Food and drinking places continue to see an uptick in footfall as Americans eat out more encouraged by a strong economy.

The unemployment rate is at a record low, wages continue to increase at a steady clip and consumers are the most confident in almost two decades. Restaurant stocks are, thus, well poised to grow on signs of renewed consumer spending.

Americans Are Eating Out More

Spending at restaurants and bars has surged since early spring, increasing to the highest yearly pace in almost 25 years. Sales of foods and drinks at restaurants jumped 10.1% in the 12 months from last August, per the Commerce Department.

 

But why just August? The restaurant industry has been able to put together its best third quarter in three years, according to TDn2K’s latest Black Box report. Same-store sales advanced 1.2% in the third quarter, the best since the third quarter of 2015. Sales, particularly, in September grew 1.2%, which marked four consecutive months of positive year-over-year gains.

Sales, by the way, were broad-based, with almost all regions of the country registering gains in September as well as the third quarter. Victor Fernandez, vice president of insights and knowledge for TDn2K, in a recent statement confirmed that “top-line numbers were good for the latest quarter and months.”

What’s Behind the Sky-High Spending at Restaurants?

People are obviously dining out more since the economy is in good shape and they are more secure about their jobs. In fact, they are pretty confident about their financial well-being. On the contrary, they don’t anticipate any near-term recession.

This is because most of the components of the Conference Board’s Leading Economic Index currently indicate a 3% or more growth rate in GDP in the final two quarters of the year. Thus, the economy is on track to hit the Trump administration’s annual growth target of 3%. If that happens, it would be the best yearly performance since 2005, two years before the Great Recession.

The economy has already expanded at a seasonally adjusted rate of 4.2% in the April-June quarter, per the Commerce Department. This marked the strongest rise since a 4.3% annual gain recorded in the third quarter of 2014.

U.S. unemployment rate, in the meantime, fell to a 49-year low of 3.7% in September, the lowest since December 1969, per the Labor Department. At the same time, wage growth is widely expected to top the 3% mark in the near term on rising competition for a shrinking pool of qualified workers.

Needless to say, the U.S. consumer confidence soared to its highest level in 18 years in September, per the Conference Board. Such high consumer confidence boosted consumer spending. Restaurants, in turn, gained as rise in spending drove their revenues.

5 of the Best Restaurant Stocks to Invest In

Since restaurants are positioned to benefit from this solid reading on the overall economy, picking stocks from the same will be a smart move. We have, thus, selected five solid restaurant stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

BJ's Restaurants, Inc. (BJRI - Free Report) owns and operates casual dining restaurants in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for the company’s earnings rose 0.5% in the last 60 days. The company’s expected earnings growth rate for the current year is 50.4% compared with the Retail - Restaurants industry’s estimated rally of 8.7%.

Good Times Restaurants Inc. (GTIM - Free Report) engages in restaurant business in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for the company’s earnings rose 11% in the last 60 days. The company’s expected earnings growth rate for the current year is 38.9% compared with the Retail - Restaurants industry’s projected rise of 8.7%.

The Wendy's Company (WEN - Free Report) operates as a quick-service restaurant company. The company has a Zacks Rank #2. The Zacks Consensus Estimate for the company’s earnings increased 1.8% in the last 60 days. The company’s expected earnings growth rate for the current year is 30.2% compared with the Retail - Restaurants industry’s expected rally of 8.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darden Restaurants, Inc. (DRI - Free Report) owns and operates full-service restaurants in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for the company’s earnings improved almost 2% in the last 60 days. The company’s expected earnings growth rate for the current year is 16.8% compared with the Retail - Restaurants industry’s estimated rally of 8.7%.

Denny's Corporation (DENN - Free Report) owns and operates full-service restaurant chains under the Denny's brand. The company has a Zacks Rank #2. The Zacks Consensus Estimate for the company’s earnings rose 1.5% in the last 60 days. The company’s expected earnings growth rate for the current year is 17.2% compared with the Retail - Restaurants industry’s projected rally of 8.7%.

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