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Which Restaurant Stocks Should Whet Investors' Appetites?

A comprehensive look at the restaurant industry.

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Restaurant stocks have generally performed quite well during the last two months. Recent economic data suggests consumer spending has stabilized, which sent restaurant stocks soaring from their early March lows despite relatively lackluster first-quarter results. The National Restaurant News Restaurant Index--an index of 61 publicly traded restaurant stocks across all categories--is now up 20% since its low on March 6, 2009. Although the performance of the overall index lagged the S&P 500, which is up 33% during the same period, casual-dining stocks generally outperformed the market during the last few weeks because of increasing consumer confidence and improving traffic trends. Quick-service chains, on the other hand, have underperformed because of indications that traffic is slowing.

Where should investors turn to satisfy their appetites for restaurant stocks? Several Morningstar analysts recently attended the annual National Restaurant Show in Chicago hoping to find answers to this question. We attended several presentations hosted by industry professionals and met with the management teams of several publicly traded and privately held restaurant operators. Although we have fewer 5-star stocks in our coverage universe following the recent runup, we believe there are still opportunities for investors to add restaurant stocks at attractive valuations.

R.J. Hottovy does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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