{"id":38681,"date":"2013-05-31T10:38:06","date_gmt":"2013-05-31T14:38:06","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=38681"},"modified":"2013-05-31T10:38:06","modified_gmt":"2013-05-31T14:38:06","slug":"restaurant-and-bar-sales-up-how-to-invest","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/05\/31\/restaurant-and-bar-sales-up-how-to-invest\/","title":{"rendered":"Restaurant and Bar Sales Up: How to Invest"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Great Recession?\u00a0 What Great Recession?<\/p>\n

\"Restaurant<\/a><\/p>\n

After flatlining for five years, restaurant and bar sales hit new all-time highs earlier this month (see chart).\u00a0 It would seem that the scrimping and ramen noodle eating that became so common after the 2008 meltdown is now a distant memory.<\/p>\n

Well, sort of.\u00a0 There are a couple things to keep in mind.\u00a0 To start, the sales data do not take into account inflation, which, while modest, makes the recent gains a little less spectacular than they look.\u00a0 And Americans haven\u2019t exactly returned to their free spending ways; according to the National Restaurant Association<\/a>, 49 percent of American adults do not eat in restaurants as often as they would like.<\/p>\n

There is also a demographic angle at work.\u00a0 20-somethings are splurging more on meals and booze, but nearly half of the 50-64 age bracket\u2014which roughly corresponds to America\u2019s Baby Boomers\u2014are spending less and consider the lower spending to be their \u201cnew normal.\u201d<\/p>\n

For anyone with an academic interest in demographics (yes, there are some of us who do), this is precisely what you would expect.\u00a0 The Baby Boomers are saving for a retirement that most are not prepared for.\u00a0 And even under more normal economic conditions, spending on food and alcohol in restaurants and bars tends to peak in the mid-50s.\u00a0 I appears that, once the kids leave the nest, Americans like to enjoy one last hurrah of feasting and boozing before they settle down.<\/p>\n

Meanwhile, while unemployment is still high among the young, most are employed and earning more than at any time in their lives.\u00a0 Most 20-somethings are also childless, meaning that a larger percentage of their incomes are disposable.<\/p>\n

And importantly, this large generation\u2014alternatively called Gen Y, the Echo Boomers, or the Millennials\u2014has a lot of spending left to do.\u00a0 The largest cohort is still in their early 20s.<\/p>\n

So, with all of this said, how do we profit?<\/p>\n

I\u2019ve been a fan of alcoholic beverage stocks for years, and Heineken ($<\/span>HEINY<\/a>)<\/b> and Diageo ($<\/span>DEO<\/a>)<\/b> are both long-time portfolio holdings.\u00a0 But these are primarily \u201cemerging market lite\u201d plays, as both have better prospects in the developing world than in North America.<\/p>\n

What about restaurant stocks?<\/p>\n

I\u2019ve had several restaurant and casual dining stocks on my watch list with the Echo Boomers in mind.\u00a0 The problem is that while I might loves some of the companies, I\u2019m not too fond of the stocks.<\/p>\n

Consider Chipotle Mexican Grill ($<\/span>CMG<\/a>).<\/b>\u00a0 It\u2019s a compelling story backed by strong, secular trends: the move towards healthier and more organic eating and the convergence between fast food and casual dining.\u00a0 And frankly, I could eat there every day and never get tired of it.<\/p>\n

There is one big problem: while Chipotle\u2019s burritos are reasonably priced, its stock isn\u2019t.\u00a0 It currently trades for nearly 30 times expected earnings and 4 times sales.<\/p>\n

Buffalo Wild Wings Inc. ($<\/span>BWLD<\/a>)<\/strong>, another trendy casual dining stock, is likewise a little too pricey for my liking.\u00a0 It trades for over 20 times expected earnings. \u00a0Panera ($<\/span>PNRA<\/a>)<\/strong> isn\u2019t any cheaper.\u00a0 It trades for 24 times expected earnings.\u00a0 None of these three pay a dividend.<\/p>\n

Moving up the price ladder, we get to Darden Restaurants ($<\/span>DRI<\/a>),<\/strong> the owner of the Olive Garden, Red Lobster, and Longhorn Steakhouse among others and Brinker International ($<\/span>EAT<\/a>),<\/strong> the owner of Chili\u2019s and Maggiano\u2019 Little Italy.\u00a0 Brinker has had a decent run, up about 60% over the past two years, compared to around 20% for the S&P 500.\u00a0 Darden has lagged and is flat for the period.<\/p>\n

Brinker and Darden are not sexy.<\/strong>\u00a0 They epitomize the American suburbs, which is about as anti-sexy as you can get when it comes to a night out.\u00a0 These restaurants are also the restaurants frequented by the Baby Boomers when they were raising their kids.\u00a0 Those same Boomers are now past that stage, and their children are not yet in it themselves.<\/p>\n

So, we can\u2019t expect a huge surge in revenues tomorrow.\u00a0 However, with the American housing market recovering and with the Echo Boomers reaching the marriage and family formation stages of their lives, there is a long-term, 10-15-year story here.<\/p>\n

Brinker is not particularly overpriced at 14 times expected earnings and pays a 2% dividend.\u00a0 But Darden would seem to be the more attractive of the two.\u00a0 It\u2019s slightly more expensive at 16 times earnings, but it pays a nice 3.7% dividend.\u00a0 Importantly, the company has been growing that dividend aggressively since 2008.<\/p>\n

Darden isn\u2019t a homerun stock, but it should be a nice income producer with the potential for decent growth in the years ahead as the Echo Boomers settle down and move to the \u2018burbs.<\/p>\n

Sizemore Capital is long HEINY and DEO. This article first appeared on InvestorPlace<\/a>.<\/p>\n

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