Fast food, great potential?
After Goldman Sachs made bullish calls in the fast food and restaurant space on Tuesday, two traders assessed whether the company’s selection could lead to profits again in the coming year.
Goldman analysts named Chipotle Mexican Grill stock as their top pick in 2021, assigning buy ratings to Domino’s Pizza, McDonald’s, Starbucks, Jack in the Box, Darden Restaurants, Brinker International and Wingstop.
Investors should look no further than a trio of stocks that dominate the group, Boris Schlossberg, chief executive of FX strategy at BK Asset Management, told CNBC’s “Trading Nation” on Tuesday.
“You really can’t go wrong with Domino’s, Mickey D’s and Starbucks,” he said, using a popular nickname for McDonald’s. “They are the trifecta in this area simply because all of these names have completely mastered the art of automating the food experience, the fast food experience, and basically spread all human error out of the process.”
All three have “huge economies of scale” that Domino uses for its logistics capabilities, McDonald’s uses to streamline ordering and test new items like meatless burgers, and Starbucks employs through its app, which generates millions of dollars in sales for the company , Schlossberg said.
“For me the whole movement here is very forward,” he said, adding that a logical next step for Domino could be to make an acquisition in the gourmet pizza space and “keep the upscale brand completely separate” and they simultaneously improve technology.
“For me, all of these players essentially dominate this area very much, and because of the economies of scale and their perfection in buying online, in-store, in BOPUS … it’s a very, very good process I think investors will be very well rewarded in the near future. “
Few parts of the restaurant industry have felt the effects of Covid-19 as small businesses have, said Todd Gordon, founder of TradingAnalysis.com, in the same interview with Trading Nation.
He cited Goldman’s report that restaurants lost around $ 150 billion in revenue last year, with smaller establishments bearing the brunt of the losses. According to analysts, more than 100,000 independent restaurants have closed.
“As much as I hate to say it, the world is changing,” he said. “Food services that use this touchless payment for mobile apps, loyalty programs, digital marketing and social media channels will be successful.”
With a strong loyalty program, more app downloads than any of its peers, few competitors, and a dividend yield of 1.77%, Starbucks was one of Gordon’s top games.
His other choice was Chipotle, “a hedge fund favorite,” he said, expected to break a long-term channel of resistance.
“You don’t even have engineering resistance up to 3,000,” said Gordon. “They are leaders and innovators in digital marketing. They have secured their utility lines. Strong stocks. They should bounce back. I am optimistic.”
Disclosure: Gordon owns shares in Starbucks.
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