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May.22

11:55 AM ET

Thursday, 22 May 2008

Restaurant Stocks: Feast and Famine

Posted By:Andrew Fisher

Topics:Nasdaq | NYSE | Stock Market | Stock Options | Stock Picks

Ahead of the Memorial Day holiday weekend, Brent Wilsey of Wilsey Asset Management has some ideas for investors about restaurant companies and their stocks.

Despite rising food costs, he's enthusiastic about the good ones.

"When you put one of these in your portfolio, you want to diversify that portfolio, and what if, down the road six to 12 months, the food costs come back down, and what if the consumer starts doing well?" he asked. "These are the companies that will perform very well in your portfolio."

Recommendations:

Picks

Topping Wilsey's "buy" list is Darden Restaurants [DRI Loading... () ], which owns the Olive Garden, Red Lobster and Longhorn Steakhouse chains.

"The valuations look pretty good here," he told CNBC. "They've actually seen their sales increase by 13.4 percent...the debt's a little high, but...I think they can pay that debt down."

Wilsey also likes Red Robin Gourmet Burgers [RRGB Loading... () ].

"Their sales are actually doing the best, up 23 percent," he noted. "A lot of cash flow coming through there, as well."

His third pick on the plus side is Bob Evans Farms [BOBE Loading... () ].

Pans

But there is also a downside list, and there, Wilsey puts Chipotle Mexican Grill [CMG Loading... () ].

"This one's just about done...based on valuation," he said. "They're still doing a very good job, but...I think the stock price has gotten ahead of the value of the company."

And there are names that give him even more indigestion.

"The one I think looks worst is Ihop [IHP Loading... () ]," he said. "Their debt-to-equity is nearly 600 percent."