Although fast-food and quick-service stocks probably won’t wow you with their performance in any given year, they are pretty dependable over the long run. Stocks such as McDonald’s Corporation (NYSE:MCD), and Starbucks Corporation (NASDAQ:SBUX) have outperformed their indexes by growing steadily and paying attractive dividends, while stocks such as Yum! Brands, Inc. (NYSE:YUM) and Chipotle Mexican Grill, Inc. (NYSE:CMG) have the potential to outperform for valuation reasons. Stocks such as Restaurant Brands International Inc (NYSE:QSR) are promising too given their growth potential. In this article, we take a closer look at the five fast-food stocks listed above, which happen to be the five in the industry that the smart money is most bullish on.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).
#5 Restaurant Brands International Inc (NYSE:QSR)
– Number of Hedge Fund Shareholders (as of March 31): 31
– Total Value of Hedge Funds’ Holdings (as of March 31): $2.89 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 32.10%
Restaurant Brands owns and operates the Burger King and Tim Hortons brands. Of the 766 active funds in Insider Monkey’s database, 31 top funds owned Restaurant Brands International Inc (NYSE:QSR) at the end of March, up by two from three months earlier. Although 31 funds doesn’t jump off the page, those funds held 32.10% of the company’s shares, making them quite overweight the stock. Some of the funds owning shares also happen to be the elite of the elite, with Warren Buffett‘s Berkshire Hathaway and Bill Ackman‘s Pershing Square both owning substantial stakes in the company at the end of the first quarter. Analysts expect substantial EPS growth for Restaurant Brands in the future, assigning the company a next-5-year average EPS growth rate of 18.43%.
#4 Chipotle Mexican Grill, Inc. (NYSE:CMG)
– Number of Hedge Fund Shareholders (as of March 31): 39
– Total Value of Hedge Funds’ Holdings (as of March 31): $1.22 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 8.60%
Chipotle Mexican Grill, Inc. (NYSE:CMG) shares have finally stabilized after last year’s E. coli incidents caused the chain’s same-store sales to crater. The stock is no longer trending lower and fewer analysts have downgraded the stock in recent months. The ownership of Chipotle among hedge funds has stabilized too. After declining sharply last year, the number of top funds holding Chipotle remained the same quarter-over-quarter as of March 31, at 39. The funds long Chipotle hope that the chain’s same-store sales will recover as time goes by and people put thoughts of the safety incidents in the past. For its part, Chipotle has dedicated substantial resources to make sure a similar event doesn’t happen again.
On the following page we’ll list the three most popular quick-service stocks among the hedge funds in our database as of March 31.