A Lucrative Investment Alternative to McDonald’s

The restaurant sector is a fiercely competitive battleground for operators, especially at times when the consumers are careful about their spending habits, as my stock analysis suggests. 

One of the top performers in the quick service market, based on my stock analysis, is Chipotle Mexican Grill, Inc. (NYSE/CMG)—the operator of the hugely popular Mexican burritos and tacos fast food restaurant chain. The food is good and has caught on with diners seeking a better and healthier alternative to the old-school fast food operators, such as McDonalds Corporation (NYSE/MCD). 

While Chipotle is clearly giving McDonald’s a challenge, I wouldn’t be ruling out the maker of the “Big Mac” yet. As shown in the last decade, McDonald’s has an excellent business model and the desire to change its strategy to conform to the trends in the restaurant business, based on my stock analysis.

 For instance, McDonald’s noticed that the coffee market was highly lucrative and high-margin, but it was controlled by the likes of Dunkin Brands Group, Inc. (NASDAQ/DNKN) and Starbucks Corporation (NASDAQ/SBUX). McDonald’s decided to improve the quality of its coffee and offer lower prices along with free coffee days in an effort to enter the market, as my stock analysis indicates. So far, the strategy has worked; McDonald’s is currently third in coffee sales in the United States and second in Canada, following the iconic home-brewed Tim Hortons Inc. (NYSE/THI). 

Yet the current environment has not been easy for many restaurant operators, including McDonald’s. In the first quarter, McDonald’s fell short on earnings and reported a decline in its U.S. traffic. A plus was growth in Europe and Asia, particularly in China, where the Big Mac is gaining popularity. 

Now, while I continue to view McDonald’s as one of the top fast food stocks for consistency and long-term results, you can also take a look at small-cap Dennys Corporation (NASDAQ/DENN) for a more speculative investment that could offer higher returns, as my stock analysis suggests. (Many of you are probably familiar with its “Grand Slam” breakfast.) 

 

                                                Chart courtesy of www.StockCharts.com 

On a comparative valuation basis, Denny’s has superior metrics to its peers, based on my stock analysis. Take a look at the table below. 

 

According to my stock analysis, Denny’s has restructured its operations over the past few years via the selling of its stores to franchisors—a strategy that allows the company to focus on its business and cut costs. 

To be more successful, Denny’s will need to continue to streamline its operations and tinker with its menu and business, given the broader move to healthier meals, based on my stock analysis. 

If you have a smaller amount of capital available, Denny’s could offer above-average returns if it can adapt to the changing restaurant environment and continue to attract customers. 

This article A Lucrative Investment Alternative to McDonald’s was originally published at Daily Gains Letter