A recent report by Morgan Stanley presents the case that 2015 could be a great year for restaurant stocks. Analysts believe that there is no need to be skeptical of the recent positive turn in casual dining trends, as they believe the uptick in traffic is due to strengthening underlying demand.
Traffic Jam
The bad news up front for restaurants is that casual dining traffic has fallen for eight consecutive years. Over-capacity and a shift toward fast food have driven casual dining traffic 15 to 25 percent below peak 2006 numbers in mature casual restaurants such as Cheesecake Factory Inc CAKE 1.24% and Brinker International, Inc. EAT 0.47%. However, analysts see a return to minimal (up to 1 percent) traffic growth in 2015.
Demographic Shifts
Analysts see big demand in the restaurant space coming from the Millennial generation over the next 10 years. Millennials are now entering their peak spending years, and they spend a disproportionately high percentage of their income on restaurants compared to previous generations. Analysts believe that this demographic shift will favor casual dining restaurants that target a younger crowd, while restaurants that target more mature customers will have to contend with a shrinking customer base.
Cheap Gas
Morgan Stanley analyst John Glass believes that casual dining restaurants will benefit from low gas prices more than other sectors of the economy. “Restaurant demand elasticity to disposable income is among the top 10 spending categories, suggesting cash saved at the pump disproportionately impacts restaurant sales.”
Glass believes that the effect of cheap gas will be strongest in low-income areas where the cost of gas represents a higher percentage of disposable income.
Stock Picks
Morgan Stanley chooses the following stocks as its top picks…
Read the rest of this article (and all my other articles) for free on Benzinga by clicking here
Want to learn more about the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
