Five Fast-Food Stocks Hedge Funds Are Bullish On

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.

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#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.

#3 Yum! Brands, Inc. (NYSE:YUM)

 – Number of Hedge Fund Shareholders (as of March 31): 51
– Total Value of Hedge Funds’ Holdings (as of March 31): $4.71 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 14.10%

Although Yum! Brands, Inc. (NYSE:YUM) is planning to spin off its Chinese operations by the end of the year, it looks less likely that the Chinese sovereign wealth fund will buy a major stake in the spin-off. According to the Daily Mail, the sovereign wealth fund, along with KKR, have ended talks to buy part of the spin-off due to Yum wanting to keep majority control of the business for tax reasons. Keeping control of some of the business might be a smart move in the long run, as China’s population is huge and its economy will eventually recover. To appease shareholders, Yum announced an authorization of up to $4.2 billion in share repurchases in May.

#2 Starbucks Corporation (NASDAQ:SBUX)

 – Number of Hedge Fund Shareholders (as of March 31): 52
– Total Value of Hedge Funds’ Holdings (as of March 31): $1.52 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 1.70%

Starbucks Corporation (NASDAQ:SBUX) earned $0.39 per share for its second quarter of fiscal year 2016, in-line with expectations. Revenue jumped by 9.4% year-over-year as global comparable-store sales rose by 6%. China remains a bright spot for the company despite its slowing economy. Starbucks’ sales in the country rose by 18% year-over-year during the fiscal quarter. Management expects full fiscal year 2016 EPS of $1.88-to-$1.89 per share.  Although shares of Starbucks aren’t cheap, Starbucks’ management executes very well and the company has a lot of growth ahead of it. 52 elite funds owned shares of Starbucks at the end of March, down by nine funds from the end of 2015.

#1 McDonald’s Corporation (NYSE:MCD)

 – Number of Hedge Fund Shareholders (as of March 31): 83
– Total Value of Hedge Funds’ Holdings (as of March 31): $4 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 3.50%

After reporting excellent fourth quarter results, McDonald’s Corporation (NYSE:MCD) delivered another solid performance in the first quarter. For the first three months of the year, McDonald’s earned $1.23 per share on sales of $5.90 billion, beating profit estimates of $1.16 per share and revenue expectations of $5.82 billion. Global comparable-store sales rose by 6.2% year-over- year while U.S first quarter comparable-store sales increased by 5.4%. Operating income rose by 15% for the quarter and McDonald’s returned $4.5 billion back to shareholders through share repurchases and dividend payments. 83 elite funds in our system held shares of McDonald’s at the end of the first quarter, ranking it as the most popular quick-service restaurant among them by a wide margin.

Disclosure: None