10 Best Fast Food Stocks to Invest In
In this article, we will be taking a look at the 10 best fast food stocks to invest in. To see more of these stocks, you can go directly to see the 5 Best Fast Food Stocks to Invest In.
Quick Service Restaurants (QSR), or fast food restaurants as most people know them, have been among the few restaurant stocks that fared well even during the COVID-19 pandemic. These stocks continue to do well today because of their resilience and consumer reliance on quick and quality food options in times of crisis. Fast food chains also tend to do well in the market because of the vast consumer base available to them. Most of these chains operate internationally and have managed to retain overseas markets for decades. This has led to widespread recognition of, and a taste for, many renowned fast food chains across the globe, whether you are looking at developing countries or developed ones.
The QSR 50
Some of the most well-known fast food chains with international footprints include the McDonald's Corporation (NYSE:MCD), Domino's Pizza, Inc. (NYSE:DPZ), and The Wendy's Company (NASDAQ:WEN). Each of these companies, and many of those like them, have managed to build brand loyalty for themselves since they have been operating, and most of them have come to be considered common household names when it comes to picking a place to grab takeout from. Since these companies have made such a name for themselves in the fast food sector today, they have become part of the QSR 50 list - a list of the top QSR companies operating across the globe today.
The QSR 50 Report for 2022 listed McDonald's Corporation (NYSE:MCD) as the top QSR company in 2022. Through 2021, the company's system-wide sales rose by 21% to reach the $112 billion mark, a new record for the restaurant chain. The domestic sales for McDonald's Corporation (NYSE:MCD) also rose by 13.8% over the same period, which signaled the highest-recorded comps performance since the company began reporting this metric in 1993. Digital sales for the company also crossed $18 billion by the end of 2021, which was another record. All in all, these factors enabled the company to be named the number one QSR on the list for 2022.
Apart from McDonald's Corporation (NYSE:MCD), The Wendy's Company (NASDAQ:WEN) also ranked high on the list, coming in at number five, while Domino's Pizza, Inc. (NYSE:DPZ) came in at number nine. These companies, alongside the other names listed below in this article, have all been included in the QSR 50 list because of their stellar performance in the past and their ability to retain their customers at times when the financial markets are taking a hit. As such, the QSR 50 list has proven itself to be a highly valuable resource for scouting top-tier fast-food restaurant companies every year.
What Did 2022 Say About The Fast Food Industry?
According to the QSR 50 report, many fast food companies benefited during the pandemic because they were well-positioned to support off-premises dining. Since most fast-food restaurants already offer drive-thru services, the takeaway frenzy that began during the pandemic was only more of the same for them. If there's anything fast-food chains learned during this time, it is that their customers will continue to be loyal to brands that please them with a well-rounded and high-quality experience.
Restaurants that failed to provide this experience to their customers did suffer from customer dissatisfaction. This has been measured by the report through a metric it has designed and named "theme performance scores" (TPS), where a higher score indicates that the restaurant concerned was performing well, while a lower score indicated the opposite. Using this metric, the report shows that brands such as Chick-Fil-A and Culver's managed to satisfy their customers with their food and dedication to serving. As a result, these brands had 1.4 and 2.09 for their respective TPS. However, KFC and Taco Bell were surprisingly seen to have dissatisfied their customers with their food quality and dedication during the pandemic, leading to both these brands being awarded scores as low as 0.55 and 0.74, respectively. In this manner, the report shows us that fast-food restaurants could not survive merely by banking on their growing sales during difficult times, but rather, they had to focus on improving the quality of their food and service just as much as regular restaurants. With these insights from 2022, many fast-food stocks are set to improve their service in 2023, leading us to compile a list of the best fast-food stocks to buy today.
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Let's now take a look at the 10 best fast food stocks to invest in.
Our Methodology
To select the stocks for our list below, we used Insider Monkey's hedge fund data for the fourth quarter, when 943 hedge funds were tracked. Using this data, we picked fast-food stocks that have been popular among hedge funds in recent quarters. We ranked these stocks based on the number of hedge funds holding stakes in them, from the lowest to the highest number. Finally, the data providing the upside potential for these stocks was obtained from TipRanks.
Best Fast Food Stocks to Invest In
10. Jack in the Box Inc. (NASDAQ:JACK)
Number of Hedge Fund Holders: 15
Jack in the Box Inc. (NASDAQ:JACK) is a restaurant chain based in San Diego, California. It operates and franchises quick-service restaurants under the Jack in the Box brand.
On March 31, Alton Stump at Loop Capital initiated coverage of Jack in the Box Inc. (NASDAQ:JACK) shares with a Buy rating.
In the fiscal first quarter of 2023, Jack in the Box Inc. (NASDAQ:JACK) generated revenues of $525.1 million, growing by 52.9% year-over-year. The company also pays out a dividend to its shareholders and has a yield of 1.91% as of April 28. Jack in the Box Inc. (NASDAQ:JACK) has raised its dividend for a year as well.
Point72 Asset Management was the largest shareholder in the company at the end of the fourth quarter, holding 361,404 shares. Jack in the Box Inc. (NASDAQ:JACK) had 15 hedge funds long its stock, with a total stake value of $93.9 million.
Chartwell Investment Partners, an affiliate of Carillon Tower Advisers, an investment management company, mentioned Jack in the Box Inc. (NASDAQ:JACK) in its third-quarter 2022 investor letter. Here's what the firm said:
“Jack in the Box Inc. (NASDAQ:JACK) is a franchisor of quick service restaurants that serve hamburgers, sandwiches, tacos, fries, shakes, and other items. It rebounded as investors anticipated the positive impact of falling gas prices on customer traffic.”
Jack in the Box Inc. (NASDAQ:JACK), like McDonald's Corporation (NYSE:MCD), Domino's Pizza, Inc. (NYSE:DPZ), and The Wendy's Company (NASDAQ:WEN), is a fast food stock that is highly popular among hedge funds today.
9. Shake Shack Inc. (NYSE:SHAK)
Number of Hedge Fund Holders: 21
Shake Shack Inc. (NYSE:SHAK) owns and operates the Shake Shack franchises in the US and internationally. It is based in New York.
Jake Bartlett, an analyst at Truist, holds a Buy rating on Shake Shack Inc. (NYSE:SHAK) shares as of April 17.
Analysts have placed an average price target of $57.46 on Shake Shack Inc. (NYSE:SHAK) shares, which were trading at $54.85 on April 28. This gives the stock an upside potential of 4.78%. Shake Shack Inc. (NYSE:SHAK) also generated revenues of $238.53 million in the fourth quarter, rising 17.35% year-over-year.
Our hedge fund data shows 21 funds long Shake Shack Inc. (NYSE:SHAK) in the fourth quarter, with a total stake value of $246 million.
8. Wingstop Inc. (NASDAQ:WING)
Number of Hedge Fund Holders: 22
Wingstop Inc. (NASDAQ:WING) franchises and operates restaurants under the Wingstop brand name. It offers classic wings, boneless wings, and tenders, among more.
On February 23, Andrew Charles at Cowen reiterated an Outperform rating on Wingstop Inc. (NASDAQ:WING) shares.
Wall Street analysts see Wingstop Inc. (NASDAQ:WING) shares as a Moderate Buy. There are currently seven Buy ratings and 11 Hold ratings placed on the stock. The company generated revenues of $104.87 million in the fourth quarter, representing an increase of 45.59%. Wingstop Inc. (NASDAQ:WING) also reported an EPS of $0.6, beating estimates by $0.19 in that quarter.
Citadel Investment Group was the largest shareholder in Wingstop Inc. (NASDAQ:WING) at the end of the fourth quarter, holding 384,500 shares. In total, 22 hedge funds were long the stock, with a total stake value of $154 million.
TimesSquare Capital Management, an equity investment management company, mentioned Wingstop Inc. (NASDAQ:WING) in its third-quarter 2022 investor letter. Here's what the firm said:
“The strategy was aided by the Consumer Discretionary sector as well. Boasting a 68% return was Wingstop Inc. (NASDAQ:WING), the franchisor and operator of quick service restaurants for cooked-to-order chicken wings. Though recent revenues lagged expectations, earnings exceeded them on better cost controls. Wingstop plans significant growth with new channels for delivery—such as Uber Eats and DoorDash— and a new chicken sandwich offering. The latter quickly took off, and later in the quarter Wingstop announced it sold four weeks of inventory in only six days.”
7. Papa John's International, Inc. (NASDAQ:PZZA)
Number of Hedge Fund Holders: 23
Papa John's International, Inc. (NASDAQ:PZZA) is a pizza franchise operating Papa John's restaurants across the globe. It is based in Louisville, Kentucky.
Analysts at KeyBanc hold an Overweight rating on Papa John's International, Inc. (NASDAQ:PZZA) shares as of April 11.
The average price target placed on Papa John's International, Inc. (NASDAQ:PZZA) shares is $97. The shares were trading at $74.8 on April 28. This gives the stock an upside potential of 29.73%. Analysts see Papa John's International, Inc. (NASDAQ:PZZA) as a Strong Buy since there are 10 Buy ratings and two Hold ratings on the stock.
Papa John's International, Inc. (NASDAQ:PZZA) was found among the 13F holdings of 23 hedge funds in the fourth quarter. Their total stake value was $402 million.
Choice Equities Capital Management, a hedge fund manager, mentioned Papa John's International, Inc. (NASDAQ:PZZA) in its fourth-quarter 2022 investor letter. Here's what the firm said:
“Our holdings are generally performing as anticipated. As a general statement, despite the potential economic headwinds, we continue to expect growing cash flows, and in nearly all cases operating margin expansion, into next year and beyond. Restaurants – Signs suggest our restaurant margin expansion thesis continue to play out as expected, as restaurants have historically been slow to walk back inflation-based menu price increases with their customers by lowering prices even if incoming food costs decline. Papa John’s International, Inc. (NASDAQ:PZZA) and Brinker International (EAT) continue to execute well.
We continue to find new attractive investments, particularly under a broader theme of normalization. Somewhat like our restaurant margin expansion thesis, we are finding ample opportunities in other industries where companies look poised for margin expansion on the back of cost relief from normalizing prices on items such as freight, cotton or merchandising margins.”
6. The Wendy's Company (NASDAQ:WEN)
Number of Hedge Fund Holders: 28
The Wendy's Company (NASDAQ:WEN) operates a quick-service restaurant company in the US and internationally under the Wendy's brand. It is based in Dublin, Ohio.
A Buy rating was reiterated on The Wendy's Company (NASDAQ:WEN) shares on April 17 by analysts at Truist.
The Wendy's Company (NASDAQ:WEN) generated revenues of $536.51 million in the fourth quarter. This represented an increase of 13.38% year-over-year. Analysts have placed an average price target of $24.71 on The Wendy's Company (NASDAQ:WEN), with a high forecast of $29. Considering the fact that the shares were trading at $21.94 on April 28, this gives them an upside potential of 12.6%.
Trian Partners was the largest shareholder in the company at the end of the fourth quarter, holding 25.3 million shares. There were 28 hedge funds long The Wendy's Company (NASDAQ:WEN) in total, with a total stake value of $834 million.
Oakmark Funds, advised by Harris Associates, mentioned The Wendy's Company (NASDAQ:WEN) in its first-quarter 2023 investor letter. Here's what the firm said:
“The Wendy’s Company (NASDAQ:WEN)’s is the second-largest quick-service burger chain in the U.S. This iconic brand generates $13.3 billion of systemwide sales from 7,095 restaurant locations around the world. Wendy’s is an asset-light franchisor that earns most of its profits from royalties, franchise fees and rent. The business is insulated from food and labor inflation since 95% of the restaurant base is owned and operated by franchisees. Wendy’s topline has proven remarkably resilient through diverse economic climates, producing 12 straight years of positive same-restaurant sales. The company is well-positioned for accelerating topline growth due to its recent launch of a breakfast menu, steady market share gains, international expansion and new restaurant openings. Despite these favorable characteristics, we had an opportunity to purchase shares at ~17x free cash flow, representing a discount to its quick-service restaurant peers as well as private market transactions.”
The Wendy's Company (NASDAQ:WEN), like McDonald's Corporation (NYSE:MCD) and Domino's Pizza, Inc. (NYSE:DPZ), is a fast food stock with high profitability and a large consumer base.
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Disclosure: None. 10 Best Fast Food Stocks to Invest In is originally published on Insider Monkey.