Cramer’s Top Restaurant Growth Stocks

Commodity costs are coming down, and that means restaurant stocks are back in style, Cramer said Monday.

The sector took a beating when commodity prices were soaring. Higher food prices cut into margins, and high gasoline prices kept people home. But now, Cramer said, “It’s looking more and more like the big restaurant death sentence has been commuted.”

For that reason, Cramer decided to spend the week of May 16 highlighting key groups of restaurant stocks. On Monday, Cramer had a “regional to national restaurant challenge,” focusing on names with the potential to give home gamers the biggest gains.

His “five star winner” is BJ’s Restaurants . This California-based pizza and beer chain has just over 100 locations in 13 states, and management plans to eventually expand to over 300 locations. It plans on opening 15 new units next year, a rapid 14 percent increase.

“The growth here is simply immense,” Cramer said.

But growth alone doesn’t make this company a winner in Cramer’s book. He also believes BJ’s is in terrific shape all around.

However, home gamers must be willing to pay up. BJ’s is selling for 38 times next year’s numbers, and the stock is about a point off its 52-week high. But don’t let the price fool you, Cramer said. BJ’s is growing earnings at a 22.4 percent clip long term. Plus, this is not a case where people have become too bullish. Ten of the 15 analysts who cover the stock have ‘holds,’ while only five have ‘buys.’ He believes this stock’s move is far from over, and he would buy.

Cramer’s second-runner up is Buffalo Wild Wings . The causal restaurant has 700 locations in 45 different states and Cramer thinks it can get a lot bigger. He said there is room to grow on the West Coast, where it only has 28 locations. And the wings and beer chain, which has a sports-centric business model, does not have locations near Pac 10 schools and very little Big East exposure. What’s more, the company’s last quarter was excellent, with same store sales up 3.9 percent at company owned units and up 1.6 percent at its franchised locations. This name is another buy, he said.

“With stock trading at 19.8 times next year’s earnings,” Cramer said, “I think Buffalo Wild Wings is a steal given its 21 percent growth rate.”

The last contestants in Cramer’s restaurant challenge were Texas Roadhouse , Sonic , and Jack in the Box .

While he thinks Texas Roadhouse has a lot of potential, the company’s latest quarter fell short of expectations. Sonic is a “great drive in chain,” but lately has missed its new franchise opening goals. Lastly, Cramer believes Jack in the Box may have gotten too big, to the point where it’s going to be hard for them to grow fast enough.

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