Mad Money

Cramer: 2 Restaurants Stocks to Own

Cramer Gets Bullish on Restaurants

When gas prices go down, restaurant stocks go up, Cramer said Monday, because people are willing to go out more and spend more.

And that’s exactly what the “Mad Money” host thinks is going to happen. Oil has already dropped 21 percent since May, and he thinks its going to continue its downward slide.

“I think that oil is going still lower now that the oil speculator cartel is being broken by government intervention,” he said. “I wouldn't be surprised to see gasoline at $3.25 by the end of the summer.”

That’s why he is urging homegamers to own a restaurant stock. Not only will the sector benefit from lower gas prices, but it will benefit from lower input costs of things like wheat and corn. What's more, Cramer said, the analysts haven't increased their estimates for the restaurant names to account for lower gas prices.

However, not all restaurants stocks are created equal. Cramer wants homegamers to go for the best of the bunch, and he thinks the best big national restaurant play is Darden Restaurants. He said this company, which owns Olive Garden, Red Lobster, Capital Grill and LongHorn Steakhouse, has the most upside from the decline in gas because it doesn’t have any franchises.

“They’re 100 percent owned by the company, which means they have the most direct exposure to commodity costs," he said. “Right now, that’s a good thing.”

It is a high quality company that has cut costs to offset rising commodity prices, he said. Now that commodities are falling, Darden’s margins will get wider.  It is also remodeling Red Lobster, which has begun to turn around.

Darden reports Thursday after the close. Right now it is selling for just 12.4 times forward earnings, which is much cheaper than the average restaurant stock and is cheaper than Darden’s own historical average multiple, Cramer said. What’s more, the analysts who cover the stock are not bullish.

“This is a terrific, terrific buying opportunity,” Cramer said. “This is a case where the expectations are low enough to be easily beaten.”

However, if homegamers are not interested in Darden, Cramer suggests Chipotle Mexican Grill . This Cramer-fave just announced price increases in the Northeast and Southeast, which will go straight to the bottom line as pure profit since commodity costs are coming down. While it hit its 52-week high Monday, Cramer believes there is more room to run.

“Chipotle’s an excellent play on healthy eating thanks to their food with integrity program, and they also have the kind of brand that most companies would kill for,” he said.

Read more:
Cramer's Top Restaurant Growth StocksRestaurant Stocks To Sink Your Teeth Into: Mature National Names
Cramer Discusses Restaurant Stocks: Regional Names

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