Nibble on these top restaurant stocks: Analyst
Mild weather this winter may be just what restaurants ordered, one analyst told CNBC on Friday.
While many traders are also looking at cheap gas prices, and in turn increased consumer spending, to potentially boost the industry, David Palmer, RBC Capital Markets restaurant analyst, said lower prices at the pump tend to only have a "medium" correlation with restaurant spending.
"Right now, we're not seeing a ton of direct pickup from that. It feels more like weather, so a lot of people in the industry are wondering if we'll see more of this in the coming months ahead," he said in an interview with " Street Signs ."
The last two winters there have been serious step-downs in results, Palmer added. Now there have been weeks where the industry is up 8-10 percent.
Here are his top picks, in order:
Yum Brands (YUM): This name had a rough couple of years and some issues with food safety concerns in China, Palmer noted.
However, he thinks a recovery in China will help push the stock higher, especially since its peer group has been running well ahead of Yum. "It is poised for a major revaluation as China recovers," Palmer said.
Starbucks (SBUX): It's the best-performing restaurant stock in the S&P 500 (^GSPC) this year. The company reported quarterly earnings Thursday that met analyst expectations.
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Restaurant Brands International (Toronto Stock Exchange: QSR-CA): The Canadian fast food company, formed by the merger of Burger King with Tim Hortons, is "arguably transforming the industry in the large-cap way much like some of these smaller 100 percent-franchise businesses are being run."
Dunkin' Brands (DNKN): Dunkin is the Pepsi (PEP) to the Coke (CCE) that is Starbucks in the U.S. coffee business, Palmer said.
"They had a tough year last year. We're expecting their results to get a little bit better this year."
As for McDonald's (MCD), which saw its stock hit after reporting quarterly earnings and revenue that fell short of expectations, Palmer said the fast food giant is dealing with headwinds from the strong dollar and big-cap brand issues. The big brands have been losing market share to smaller brands, and McDonald's is not immune, he said.
"McDonald's is going to try to do an old-fashioned turnaround similar to what it did back in '03 where it redoes the menu, gets back to value, but doing it locally," he said.
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-CNBC's Dominic Chu and Stefanie Kratter contributed to this report.
Disclosures: David Palmer and RBC do not own YUM, SBUX, DNKN, QSR; QSR is an investment banking client; RBC Capital Markets is currently providing McDonald's Corporation with non-securities services.
