Fast Food Favorites

10/31/2014 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

In his growth-focused Cabot Top Ten Trader, Mike Cintolo looks at a trio of fast-food stocks; a pizza play, a burger bet, and a chain offering Mediterranean-inspired dishes.

A few years ago, Domino’s Pizza (DPZ) was looking like a lost business but a new menu and a solid expansion plan have turned the ship around the past two years.

One factor working in its favor is the nature of the business—a relatively cheap pizza joint isn’t going to see business plunge during an economic slowdown—and with business clearly doing well, big investors feel comfortable putting money to work.

DPZ built a nice base for most of this year, consolidating tightly along its 40-week moving average and the latest quarterly report caused the stock to jump on its heaviest volume in 15 months. If defensive-oriented stocks remain in demand, DPZ could do well. Try to buy on dips.

Fast food restaurateur Jack in the Box (JACK) has had a hot hand lately. The company serves up burgers and fries at more than 2,866 franchises in California, Texas and roughly 20 other states.

While the Jack in the Box locations are doing well, the Qdoba chain—625 Qdoba Mexican Grill fast casual restaurants in 47 states—is on fire and there is speculation within the analyst community that Jack in the Box might be considering a Qdoba spinoff to capitalize on the brand’s strength.
While it hasn’t been a smooth rally, JACK has clambered more than 38% higher so far in 2014. If you want in, you can grab a few shares on dips.

Zoe’s Kitchen (ZOES) is a classic cookie-cutter story that we believe can go very far in the years ahead.

It serves up Mediterranean-inspired dishes with a Southern flair: pitas, hummus, sandwiches, and kabobs, along with a ton of fresh fruits and veggies. Women represent 70% of customer visits and the average household income of each customer is north of $100,000.

Zoe’s has 125 restaurants in 15 different states; the firm will boost its store count by about 30 this year and a similar number of openings in 2015 looks reasonable.

Sales growth is excellent (and accelerating), while earnings are near break-even as the firm puts its money into expansion.

The only rub here is that the stock—which came public in April—is very thinly traded (just $17 million per day), so if you decide to buy, keep it small and use a very loose leash.

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