Despite the turbulence, the
overall market, at least as gauged by the S&P 500, is still up
around 2%, year-to-date, and tech stocks are still up 6%.
But believe it or not, U.S.-based restaurant stocks, not even on
most investors’ radar, have done even better. They are up 10% so far
this year.
Now that I’ve got your attention, I’ll show you how
to find worthwhile restaurant stock candidates. As usual, I’ll use
the free finviz stock screener to illustrate the process.
finviz Stock Screener
Start at the finviz homepage (https:finviz.com)
and select Screener. Then click on “All” to see the
available stock selection filters. Setup a filter using the
associated dropdown menu to select a screening value.
Define Screening Universe
Define your restaurant stock universe by using the
Industry filter to specify “Restaurants” and the Country
filter to select “USA.” Then, use the Market Cap filter to
rule out very small stocks, which are higher risk, by specifying
“+Small.” Doing that limits your list to stocks with
market-capitalizations (value of all outstanding shares) above $250
million. Also, because cheap stocks got that way because market
players see problems ahead, use the Price filter to limit you list
to stocks trading above $15 per share.
Earnings Rule
All else equal, share prices track earnings. So, the
more the expected EPS growth, the better. Select “over 10%”
using the ‘EPS Growth This Year’ filter to confine your list to
stocks that analysts expect to growth per-share earnings at least
that fast.
Uptrending Stocks
This may sound counterintuitive, but stocks that have
already moved up in share price (uptrending) are your best bets in
terms of future stock appreciation potential. You can find
uptrending stocks by comparing a stock’s current share price to its
moving average, which is the average closing price over a specified
time period. Use the 20-Day, 50-Day, and 200 Day Simple Moving
Average (SMA) filters and specify “Price above SMA” for each.
Too Late to the Party?
A downside of focusing on uptrending stocks is that
your stocks might be overvalued by the time that you find them.
Thus, it’s important to check valuation. You can do that using the
Forward Price/Earnings ratio which compares the current share price
to the next fiscal year’s forecast earnings. Forward P/S often runs
as high 50 for popular stocks. Start by specifying “Under 25”
for Forward P/E, but try raising it to 30 or 35 if your screen
doesn’t turn up enough stocks.
Follow Smart Money
Use the Analyst Recommendation filter and specify
“Buy or Better,” to confirm that analysts following stocks
turned up by our screen haven’t found problems that our checks
missed. Along those same lines, specify “Over 60 percent” for
Institutional Ownership to assure that mutual funds, banks, and
other big players are buying these stocks.
Passing Stocks
Out of 47 U.S.-based restaurant stocks, only three
passed these tests when I ran it. Click
here to see which stocks the screen is turning up today.
Denny’s (DENN): Has more than 1,700 franchised
and company owned restaurants in the U.S. and around the world.
McDonald’s (MCD): More than 34,000 company
owned and franchised restaurants in the U.S. and globally.
YUM! Brands (YUM): Operates and franchises
more than 44,000 restaurants under the KFC, Pizza Hut, and Taco Bell
brands.
As always, considered the stocks turned up by this
screen to be research candidates, not a buy list. The more you know
about your stocks, the better your results.
published 11/13/18
