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Jan. 24, 2022, 9:27 a.m. EST

Restaurant stocks are on the menu for investors as the pandemic’s end nears

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By Michael Brush

Omicron is ripping through the population at a shocking rate, but there’s an upside.

The coronavirus variant is milder and on track to leave the U.S. faster than delta.

If so, this will favor “reopening” plays in the stock market. Especially restaurants, since people have been reluctant to spend time in closed spaces with others wearing no masks.

Besides this factor, here are five reasons why restaurant stocks look attractive, according to Bank of America analysts. Below, I single out five restaurant stocks to consider.

1. Restaurants benefit from jobs and income growth

As people earn more, they go for the convenience of dining out. This trend particularly benefits full-service restaurants as opposed to fast food and take out. So, I favored full-service eateries when hunting for names, singled out below.

In 2019, the share of disposable personal income spent on restaurants was 5.2%. It’s currently 6% below that, at 4.9% of income. Getting back to 2019 levels would add $60 billion in restaurant spending, about 10% of 2020 restaurant spending, according to Bank of America.

2. Tailwinds from capacity reduction will continue

Unfortunately, around 10% of restaurants had to close during the pandemic, especially smaller, independent operators. It will take a while to rebuild. After the 2008-2009 financial crisis, capacity did not fully rebound until 2012, says Bank of America. This benefits the survivors — particularly those that have aggressive growth plans to fill in the capacity. So, I favored chains with big growth plans.

3. Grocery store food prices are going up faster than restaurant prices

This benefits restaurants, since they become relatively cheaper. Fast casual restaurants benefit the most from this discrepancy, so I favored them.

4. Inflation may be peaking right now

Supply-chain and transport issues are getting worked out. This suggests we have seen the worst of food and wage inflation. If so, this favors restaurants since their two main costs will be falling faster than the overhead at other kinds of companies.

5. Restaurants look cheap compared to the market

Eateries on average are trading below their historical levels relative to the market. The S&P 500 Restaurants index’s relative price-to-earnings ratio is below its historical average of 1.4 times the S&P 500 multiple, as you can see in this chart from Bank of America.

Stocks to consider

To find restaurants that may benefit most from these trends, I looked for three things.

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