4 Stocks To Serve Better Returns Amid Restaurant Recovery

After surviving the seven-quarter long tragedy of declining comps, the U.S. restaurant industry received a pleasant surprise in the fourth quarter of 2017. According to TDn2K’s The Restaurant Industry Snapshot, comps for the fourth quarter were up 0.4%, comparing favorably with the third quarter’s comps decline of 1%.

Should We Be Optimistic of Growth?

The positive momentum in sales growth in the fourth quarter was not enough to outweigh the sluggish growth of the industry in 2017. For the full year, comps declined 1.1%, the same as in 2016. Traffic for the year also fell 3.2%.

Amid declining traffic trends for the year, comps growth may have been aided by promotions and discounting strategies by restaurant management. Over the past year, the restaurant industry’s shares have returned 14.9%, underperforming the growth of 16.2% for the S&P 500.

However, most of the restaurants are undertaking aggressive sales-building strategies to drive demand. The fourth quarter already bore the fruit of these efforts. We believe that 2018 is set to witness an overall improvement in restaurant sales given an increase in consumer discretionary spending coupled with the restaurant bigwig’s sales-improvement efforts.

Restaurant Operators Bullish About Industry Scenario

A turnover for most restaurants showed up in November 2017 and is ongoing. Moreover, according to TDn2K market research, the overall restaurant industry is starting to improve. Although not all brands may have an opportunity to rake in profits, many of the restaurant's operators foresee consumer demand to rise and discretionary spending to increase in 2018.

So, with growth around the corner, investors can consider a few stocks from the space that appear to hold promises for 2018.

Picking the Right Stocks

We have taken help of the Zacks Stock Screener to zero in on restaurants stocks that project year-over-year sales growth in 2018 and carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). 

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