RBC Capital Markets made a bullish call on one under-the-radar fast-food stock, and two traders are weighing in with their own restaurant chain picks.
RBC analysts initiated West Coast burger chain Jack in the Box with an outperform rating Thursday, calling its valuation compelling and predicting new restaurant growth. That stock has been a surprise winner this year, rising by nearly 30%, roughly three times the gains for McDonald’s.
Todd Gordon, founder of TradingAnalysis.com, prefers a different restaurant chain. He says the economy reopening should fuel demand for higher-end dining.
“I would like to look at Ruth’s Chris [Steak House],” Gordon told CNBC’s “Trading Nation” on Thursday. “This is a bull market stock. It’s got locations focused in metro areas … and these higher-rent sit-down places like Ruth’s Chris or Capital Grille, they have smaller tables, fewer customers, but they have bigger checks.”
Ruth’s Hospitality, which owns the Ruth’s Chris Steak House franchise, has a $795 million market cap. The stock has risen 149% in 12 months but has fallen 21% from an early May peak.
“The stock is only 22 times forward earnings,” said Gordon. “We’ve pulled back to the lower $20s, which, ironically, was the breakdown in the Covid era, so I kind of like to use that as support. I’m looking to add that to my portfolio.”
Another chain caught the eye of Gina Sanchez, CEO of Chantico Global and chief market strategist at Lido Advisors.
“We went with Starbucks. We actually brought Starbucks into our recovery portfolio at Lido Advisors,” Sanchez said during the same interview. “They got really pummeled during the pandemic, although they did actually spend quite a bit of money to go digital and to make their products available in an easy-to-order way.”
Starbucks fell 46% from a January 2020 high to its pandemic low in March last year. It has rallied 122% since then.
“They’re really set to recover along with the rest of the economy,” said Sanchez. “The lines are already starting to form at Starbucks as people slowly return to normal life, some going back into the office, and I think all of that benefits Starbucks.”
Disclosure: Lido Advisors holds shares of Starbucks.