Newspaper article St Louis Post-Dispatch (MO)

Put Eateries on Your Menu, Investors Told

Newspaper article St Louis Post-Dispatch (MO)

Put Eateries on Your Menu, Investors Told

Article excerpt

Next helping, please.

At the opulent 1995 stock market feast, it's increasingly difficult to find value-priced stocks on the menu.

Many restaurant stocks, however, are bargains. Their considerable earnings potential is being overlooked because they've lately given investors nothing but indigestion.

A large number of restaurant companies went public in 1991 and 1992, with impressive earnings growth continuing through 1993. But earnings slowed last year as the economy weakened wRe and dining out suffered.

The most aggressive fast-food restaurants, in particular McDonald's Corp. and Wendy's International, stayed strong with a skillful emphasis on value and marketing. Lesser competitors didn't fare as well.

Full-service casual dining in particular stumbled as consumers encountered a "restaurant row" of similar establishments with similar prices. Competition is stiff. Nonetheless, this group should hold long-term benefits for patient investors as less capable chains fall by the wayside and successful ones expand.

Chains controlled just 15 percent of the fast-food industry 30 years ago but today have 85 percent, and independents have been squeezed out.

"A miserable '94 and difficult '95 for restaurant stocks created an investment opportunity, though you must have an investment horizon of 18 months," said Joseph Buckley, managing director of Bear, Stearns & Co.

That wait is necessary because some positive trends are on the wane. In the early part of an economic recovery, people eat out more, Buckley noted. You don't enjoy that benefit when you get this deep into the cycle.

"Women entering the work force and Americans staying single longer dramatically increased the number of people eating out, but both trends have reached a steady state," added Harry Venezia, analyst with Raymond James & Associates.

"Restaurant stocks look interesting for value investors," advised Caroline Levy, senior vice president with Lehman Brothers. …

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