Jim Cramer's 3 Best Restaurant Stocks to Add to Your Portfolio

NEW YORK (TheStreet) -- Like their customers, restaurant stocks can be finicky, highly dependent on employment and consumer discretionary funds. But low oil prices have been making many restaurant stocks look like good buys.

Jim Cramer, Mad Money star, co-portfolio manager of Action Alerts Plus, a charitable trust portfolio and Real Money columnist, has three restaurant stocks he likes best.

"We may think that the weak employment number may, somehow, impact ... restaurants and retailers, but these are far more a play on oil and gas, easier comparisons and commodity pressure on their suppliers," Cramer wrote in a Real Money post. "All of these companies have reported excellent numbers in the last go-around, and every single last one of them has easy comparisons. You would not be able to get into these stocks without this selloff, and all of these companies are simply not going to skip a beat because of what came out on Friday."

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Cramer believes that the stocks of many good companies - across sectors -- are being dragged down by the S&P 500 since the index is up just 0.85% year-to-date. "I am talking about all the juicy stocks that are being thrown away right now that have no business being thrown away, and are only going down because they are a part of the S&P 500," he wrote.

TheStreet paired Cramer's restaurant sector picks with TheStreet Ratings to determine whether they really are good investments going forward.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year. Year-to-date returns are based on April 7, 2015 closing prices.

Check out which stocks are Cramer's favorites.


 CBRL data by YCharts 

1. Cracker Barrel Old Country Store Inc. (CBRL - Get Report)
Year-to-date Return: 4.9%

Cracker Barrel Old Country Store, Inc. develops and operates the Cracker Barrel Old Country Store concept in the United States. The company's Cracker Barrel stores consist of a restaurant with a gift shop. Its restaurants provide breakfast, lunch, and dinner.

Jim Cramer predicted that Cracker Barrel would strongly beat earnings estimates for its most recent fiscal quarterly report. And it did.

In mid-February, he said that "this company, which is uniquely levered to interstate highways, would blow the numbers away because its restaurants are a natural place to stop for travelers saving money at the pump. Today (February 25) the company reported a fantastic number and cited that it is the natural place for on-the-go travelers who are saving money at the pump to stop. It's textbook bull market," he wrote on Real Money in late February.

TheStreet Ratings rates Cracker Barrel a buy, A+.

TheStreet Ratings said: "We rate CRACKER BARREL OLD CTRY STOR (CBRL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and reasonable valuation levels. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 8.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
• Powered by its strong earnings growth of 26.45% and other important driving factors, this stock has surged by 52.33% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CBRL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
• CRACKER BARREL OLD CTRY STOR has improved earnings per share by 26.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CRACKER BARREL OLD CTRY STOR increased its bottom line by earning $5.52 versus $4.89 in the prior year. This year, the market expects an improvement in earnings ($6.55 versus $5.52).
• The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Hotels, Restaurants & Leisure industry average. The net income increased by 27.3% when compared to the same quarter one year prior, rising from $37.06 million to $47.16 million.

• You can view the full analysis from the report here: CBRL Ratings Report

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   DRI data by YCharts 

2. Darden Inc. (DRI - Get Report)
Year-to-date Return: 13%

Darden Restaurants, Inc. owns and operates full service restaurants in the United States and Canada. It operates restaurants under the Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's, and Yard House brand names.

Darden is the "single most levered [company] to the price of gasoline," Cramer said last month. The company's fiscal fourth-quarter results, reported March 20, are proof of that.

TheStreet Ratings rates Darden a buy, B.

TheStreet Ratings said: "We rate DARDEN RESTAURANTS INC (DRI) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 6.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
• The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Hotels, Restaurants & Leisure industry average. The net income increased by 22.0% when compared to the same quarter one year prior, going from $109.70 million to $133.80 million.
• The debt-to-equity ratio is somewhat low, currently at 0.68, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.37 is very weak and demonstrates a lack of ability to pay short-term obligations.
• Powered by its strong earnings growth of 55.38% and other important driving factors, this stock has surged by 31.06% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
• DARDEN RESTAURANTS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DARDEN RESTAURANTS INC reported lower earnings of $1.38 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.49 versus $1.38).

• You can view the full analysis from the report here: DRI Ratings Report

Here's a transcript of Darden's fourth-quarter earnings conference call.

 J JACK data by YCharts 

3. Jack in the Box Inc. (JACK - Get Report)
Year-to-date Return: 17%

Jack in the Box Inc. operates and franchises Jack in the Box quick-service restaurants and Qdoba Mexican Grill fast-casual restaurants in the United States.

Jack in the Box is one of Cramer's favorite names in the restaurant sector. Besides benefitting from lower gas prices, it's possible that the fast-food chain could spin off its Mexican concept Qdoba, which competes with the likes of Chipotle Mexican Grill (CMG).

A Qdoba spin off would "bring out value that's currently hidden by the hamburger business," Cramer said.

TheStreet Ratings rates Jack in the Box a buy, B.

TheStreet Ratings said: "We rate JACK IN THE BOX INC (JACK) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, good cash flow from operations, impressive record of earnings per share growth and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 4.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
• JACK IN THE BOX INC has improved earnings per share by 25.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, JACK IN THE BOX INC increased its bottom line by earning $2.26 versus $1.84 in the prior year. This year, the market expects an improvement in earnings ($2.95 versus $2.26).
• The net income growth from the same quarter one year ago has significantly exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 11.0% when compared to the same quarter one year prior, going from $32.29 million to $35.84 million.
• The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, JACK IN THE BOX INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
• Net operating cash flow has significantly increased by 100.18% to $47.35 million when compared to the same quarter last year. In addition, JACK IN THE BOX INC has also vastly surpassed the industry average cash flow growth rate of 36.99%.

• You can view the full analysis from the report here: JACK Ratings Report

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By Laurie Kulikowski 

Source: http://www.thestreet.com/story/13105784/1/jim-cramers-3-best-restaurant-stocks-to-add-to-your-portfolio.html