Hedge Funds Have a Hunger for These Restaurant Stocks

Food and restaurant stocks are mostly deemed risky as they largely depend on various factors like food scares, weather and recessions, but analysts think that rising consumer spending makes dining sector attractive for investments. The National Restaurant Association’s annual industry report says that the restaurant sector is expected to grow in 2016, and sales will cross $783 billion by year-end. In this article, we will assess hedge funds’ most favorite restaurant stocks based on the latest 13F filings of some 750 funds we track at Insider Monkey.

An everyday investor doesn’t have the same resources and capabilities to analyze different publicly-traded companies as hedge funds do. This is why it is a good idea to see what stocks hedge funds like the most and try to imitate some of their bullish moves in an attempt to reap market-beating returns. At Insider Monkey, we follow the activity of several hundred of the best-performing hedge funds as part of our strategy. We analyze their 13F filings and use the data to see what stocks they are collectively bullish on. Through extensive research we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).

McDonald’s Corporation (NYSE:MCD)

– Number of Hedge Funds Having Long Positions (as of June 30): 63

– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $3.03 billion

At the end of the second quarter, 63 funds from our database were bullish on McDonald’s Corporation (NYSE:MCD), down from 83 funds a quarter earlier. The stock is down by 2% so far this year. Last week, financial services firm Baird upgraded McDonald’s Corporation (NYSE:MCD) to ‘Outperform’ and upped the price target to $128 from $126. The firm thinks that McDonald’s has more risk-reward prospects for investors in the coming 6-12 months, after having underperformed year-to-date. McDonald’s Corporation (NYSE:MCD) is experiencing falling same-store sales, but Baird thinks that high dividend makes the stock attractive for investors. The fast food chain earned $1.45 a share in the second quarter, above the forecasts of $1.39, while revenue totaled $6.27 billion, in line with estimates.

 Starbucks Corporation (NASDAQ:SBUX)

– Number of Hedge Funds Having Long Positions (as of June 30): 53

– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $1.57 billion

A total of 53 investors tracked by Insider Monkey owned $1.57 billion worth of Starbucks Corporation (NASDAQ:SBUX) shares at the end of the second quarter. The stock has lost around 6% so far this year. Last month, RBC Capital’s analyst David Palmer reiterated his ‘Outperform’ rating on the Seattle-based coffee company with a price target of $68.00. Starbucks Corporation (NASDAQ:SBUX) is experiencing a slowdown in its My Starbucks Rewards (MSR) adoption rate and mobile growth as consumers get used to its new rewards app. The company’s fiscal third-quarter earnings came in at $0.42 a share, above the forecasts of $0.41 per share. For the full year, Starbucks expects earnings in the range of $1.57 to $1.58 per share. Columbus Circle Investors, owned by Principal Global Investors, has over 2.36 million shares of Starbucks Corporation, as of the end of the June quarter.

On the next page, we will take a look at some other stocks for which hedge funds are hungry for.

Yum! Brands, Inc. (NYSE:YUM)

– Number of Hedge Funds Having Long Positions (as of June 30): 46

– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $4.52 billion

Among the funds in our database, 46 were bullish on Yum! Brands, Inc. (NYSE:YUM), holding in aggregate $4.52 billion worth of stock at the end of June. Yum! Brands recently has announced its intention to sell Chinese division to Primavera Capital and Alibaba’s affiliate Ant Financial as it prepares to spin off its Chinese unit from the main business before the end of the year. The decision comes after the food chain faced problems like food safety and bird flu outbreaks scandals and intense competition from rivals like McDonald’s. After the announcement, BTIG reaffirmed its ‘Neutral’ rating for Yum! Brands (NYSE: YUM).

Chipotle Mexican Grill, Inc. (NYSE:CMG)

– Number of Hedge Funds Having Long Positions (as of June 30): 39

– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $1.69 billion

At the end of the second quarter, 39 funds tracked by Insider Monkey held $1.69 billion worth of Chipotle Mexican Grill, Inc. (NYSE:CMG)’s stock, which accounted for over 14% of the company’s float at the end of the second quarter. The Denver-based company has announced two new promotional deals for September as the company desperately tries to win back customers and increase foot traffic in its stores following last year’s high-profile foodborne illness outbreaks. Chipotle Mexican Grill, Inc. (NYSE:CMG) swung back to profit in the second quarter, but same-store sales declined by 26.5%. In other news, around 10,000 Chipotle Mexican Grill (NYSE: CMG) employees have recently decided to sue the company for not being paid for extra hours of work.

Domino’s Pizza, Inc. (NYSE:DPZ)

– Number of Hedge Funds Having Long Positions (as of June 30): 33

– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $1.25 billion

A total of 33 funds tracked by us were positioned in Domino’s Pizza, Inc. (NYSE:DPZ) heading into the third quarter, having amassed $1.25 billion worth of shares in aggregate. Domino’s Pizza (NYSE:DPZ) posted second-quarter EPS of $0.98 on revenue of $547.34 million, compared to analysts’ estimates of $0.94 and $533.44 million, respectively. Its domestic same-store sales jumped 9.7% in the second quarter. Last month, the company’s international franchiser tested pizza delivery by drones in Auckland, New Zealand as part of its plan to become the world’s first food company to start a drone-based delivery program.

 

Disclosure: None