Investing in Restaurants with Stock Options

Consumers may be cutting back on a lot of unnecessary spending these days, but many people still see eating out as a “treat.” The average American considers going to a restaurant with family and friends as a relatively inexpensive form of entertainment and pleasure, and a nice break from cooking and cleaning at home. And, after all, everyone has to eat.

Despite the economic downturn, many restaurant companies are fairing well, especially those that have found ways to reinvent themselves and have lowered prices to entice recession-weary guests. In their 2009 Restaurant Industry Forecast, the National Restaurant Association reported that restaurant industry sales are expected to reach $566 billion in 2009.

The forecast goes on to say that restaurants represent 4 percent of the U.S. gross domestic product and employ 9 percent of the U.S. workforce. Dawn Sweeney, president and CEO of the association says nearly half of consumers’ food budget will be spent in restaurants this year. “Americans will continue to rely on restaurants as a key part of their lifestyle as the industry provides the food, value and service customers seek,” Sweeney said.

This could be good news for those interested in investing in restaurant companies. Most restaurant stocks, like those in other industries, are trading low and have a lot of room to grow. Whether the investor wants to put money in quick-service or full-service, upscale or casual dining, multi-restaurant companies or those with more singular brands, the diverse restaurant industry has something for everyone. Some top choices include:

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Darden Restaurants Inc. (DRI). Based in Orlando, FL, Darden is the world’s largest full-service dining restaurant company with more than 1,700 company-owned restaurants and almost $6.7 billion in annual sales. The 40-year-old company owns and operates Red Lobster, Olive Garden, Bahama Breeze and recently added LongHorn Steakhouse and the more upscale Seasons 52 and The Capital Grill to its roster.

Dallas-based Brinker International Inc. (EAT), established in 1975, is owner of the Chili’s Grill & Bar and Romano’s Macaroni Grill and the newer Maggiano’s Little Italy and On the Border Mexican Grill & Cantina. The company and its franchisees operate more than 1,700 restaurants in 27 countries and two territories with annual sales of more than $4 billion.

Louisville, KY-based Yum! Brands Inc. (YUM), owners of KFC, Pizza Hut, Taco Bell, A&W and Long John Silver’s, is the world’s largest quick-service restaurant company with more than 36,000 restaurants in over 110 countries and territories. The company claimed revenues in excess of $11 billion in 2008.

PF Chang’s China Bistro, Inc. (PFCB), based in Scottsdale, AZ, owns and operates P.F. Chang’s China Bistro, a full-service upscale casual dining restaurant and Pei Wei Asian Diner, a quick-service eatery. The company, started in 1996, owns nearly 350 restaurants with annual sales of more than $1.2 billion.

Panera Bread (PNRA), established in 1981 in Richmond Heights, MO is a quick-service bakery cafe that operates more than 1,300 company-owned and franchise-operated units in 40 states and in Canada, and has approximately $1.3 billion in annual sales.

Of course investors may also want to consider newer restaurant companies such as Chipotle Mex Grill (CMG) and old standbys such as Wendy’s/Arby’s Group (WEN), McDonald’s (MCD) and Outback Steakhouse (OSI).

Wouldn’t it be nice to have your cake and eat it too? Well you can with stock options, as you can own companies stock and also generate monthly income. Covered call investing is one method for generating monthly income, as a covered call is similar to leasing a house with an option to purchase. A covered call investing strategy consist of selling call options against purchased stock. Wouldn’t it be great to make “rental income” from your personal stock portfolio? For example, a covered call investing position is available for Darden Restaurants (DRI) for July 2009 with a potential return of 5.8% – and the return is realized in only 29 days.

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[tags] restaurant, National Restaurant Association, Red Lobster, Olive Garden, Bahama Breeze, LongHorn Steakhouse, Seasons 52, The Capital Grill, Chili’s Grill & Bar, Romano’s Macaroni Grill, Maggiano’s Little Italy, On the Border Mexican Grill & Cantina, KFC, Pizza Hut, Taco Bell, A&W, Long John Silver’s, Pei Wei Asian Diner, CMG, Chipotle Mexican Grill Inc., DRI, Darden Restaurants Inc., EAT, Brinker Intl. Inc., MCD, McDonalds Corp., PFCB, P.F. Changs China Bistro, PNRA, Panera Bread Co., WEN, Wendys Intl. Inc., YUM, Yum Brands Inc. [/tags]