Surprise: The Best Restaurant Stock of 2024 Wasn't Cava, Chipotle, or Sweetgreen

Time to search the waiver wire for the best restaurant stocks. That's investment talk about trying to pick up some bargains, stocks not signed by other investors that have turned out to be interesting prospects. It's a time-honored tradition, especially in a market where restaurant stocks get hit pretty regularly, and as you can see from your screen, that's been the case both in the restaurant industry and in stocks since this season began. Let's go hunting for some new wide-outs to augment your portfolio because of the carnage.

I'm liking some that we picked last week -- Okta (OKTA), ServiceNow (NOW), and Salesforce.com (CRM) -- as much as ever, especially because they have been hammered as part of the market-wide rotation.

But let's start with Brinker International (EAT). This one's been down and out ever since the company allegedly guided down numbers last week. I have parsed every word of what was said at Goldman Sachs and I come back with this: The company operating income growth model is intact and the issues that brought the stock down last week were below the line and tax related. I know CEO Kevin Johnson took a lot of heat for not disclosing this stuff when he was on Mad Money, but it was purely bookkeeping and what matters is the growth rate was kept unchanged.

And as far as the SEC issues that just came up relative to disclosure, a story that pulverized the stock late in the day? There were 200 other companies that were similarly flagged in a routine accounting inquiry. Only Brinker got the headlines. This non-story also hurt others in the restaurant industry, including Applebee's (DIN) and Chili's (EAT). It was a nothing burger plain and simple.


I think that Sanjay Poonen, the chief operating officer of VMware (VMW), made a ton of sense last night when he talked about how recent acquisitions, Pivotal for containers and Carbon Black for cyber security, would be great additions. I had been skeptical given that Pivotal seemed like a Dell castoff. I don't think that now. I also believe that the Dell-Crowdstrike relationship is going to be severely crimped by the Carbon Black acquisition. No wonder VMware has started to rally.

Finally, after parsing through all of the comments we heard last week from the Splunk (SPLK) CEO, Doug Merritt, I believe that we are getting a chance to buy a stock of a premier analyzer of data that would make a ton of sense as an acquisition, post the Tableau Software purchase by Salesforce, or just as an outright buy because of the need for as much analysis as possible. Splunk is real -- and this marketplace is acting as if it is fake.


Two other potential waiver-wire grabs: Shopify (SHOP) and Chipotle (CMG). Shopify just made a terrific acquisition, the $450 million purchase of 6 River, which is a fulfillment expert that can make delivering products for its small-to-medium-size customers equal to that of Amazon (AMZN). But the stock's in a downtrend -- it has now given up 70 straight points -- and who knows when the bottom is reached, but you sure aren't buying it at the top.

Chipotle? When you are the number one performer in the S&P 500 and you hit a wall for no good reason other than a rotation, it is bound to scare people and foment reasons for the decline. There aren't any. It's just been too hot in a market where Wendy's (WEN) gets hit on starting up breakfast and McDonald's (MCD) gets hurt because it competes against Wendy's. Oh, and Chipotle also got caught up in this so-called SEC comment inquiry, the same inaccurate story that helped tumble the stock of Starbucks (SBUX) late in the day. Not only is there nothing wrong at Chipotle, its business seems to be accelerating from new menu items and advertisements.

When you get a chance to buy the best of the best down almost 10%, that's like stashing a wide receiver over a bye week. I know it can go lower, but does that mean it's getting cheaper? Despite the $700 price tag, you bet it does.

But the real surprise of 2024 was Brinker International (EAT). This company, which owns Chili's and Maggiano's, has seen its stock soar 218% so far in the year, making it one of the top-performing restaurant stocks of the year. This outstanding performance can be attributed to several factors:

1. Menu Simplification: Brinker has simplified its menu, which has helped to reduce food costs and improve operational efficiency. This initiative has contributed to a decrease in expenses as a percentage of revenue, with both food costs and labor expenses dropping in recent years. This has led to improved profitability for the company.
2. Labor Practice Improvements: Brinker has been focusing on enhancing its labor practices, which has helped to improve customer satisfaction and employee retention. This has resulted in a winning streak of same-store sales growth, with the company reporting growth rates of 5% to 14% in recent quarters. This growth in sales can be attributed, in part, to improved customer satisfaction and better employee performance.
3. Reduction in Long-term Debt: Brinker has also been working to reduce its long-term debt, which has helped to improve its financial health and flexibility. This has contributed to the company's overall improved performance and valuation.

These strategic initiatives, along with other factors such as increased competition in the restaurant industry, have driven Brinker International's exceptional performance in 2024. The company's stock has tripled in value this year, making it the top restaurant stock of 2024 with just a few days left in the year.

So, if you're looking for the best restaurant stock of 2024, don't overlook Brinker International (EAT). Its strong comparable sales growth, improved profit margins, and strategic initiatives have driven its exceptional performance this year. And with its focus on value and diverse consumer preferences, Brinker is well-positioned to continue its success in the coming years.