Investing Advice: Cashing in on Eating Out

Posted On June 8, 2018 12:57 pm

Over the past year and change, predictions of the death of retail grabbed plenty of headlines, with lists of store closings and photos of empty malls. As a result, many of these firms saw tumbling share prices throughout most of 2017. Common investing advice was to steer clear of anything associated with retail.

But then around Christmas time, a funny thing happened. People still went shopping, and the stocks started rebounding. And some have been the best performing stocks of the past six months.

The epitome of this shift is Macy’s (M). Some were actually predicting the department store behemoth would actually end up in bankruptcy.

But since it bottomed right around Black Friday the stock has more than doubled!

So is it too late to climb aboard the resurgence in retail?

Evercore ISI doesn’t think so, as it recently upgraded not Macy’s, but the entire sector, with a report saying that the retailpocalypse is over.

I’m not sure I’d jump on Macy’s at these levels, or any of the physical, apparel oriented retailers, for that matter. They still face secular headwinds with too many stores and a shift to online shopping.

But I am bullish on a different sector tied to discretionary consumer spending: restaurants. This group had also come under selling pressure through most of 2017 as people citing the behavioral trends of millennials as shift towards take-out and ordering delivery.  Restaurants are also immune to being Amazoned. So my investing advice today focuses on these stocks.

Again, many of these stocks, from high end steakhouses like Texas Roadhouse (TRGH) and Ruth’s Chris (RUTH) to casual dining such as Darden (DRI) owned brands like Olive Garden to lower end chains like Denny’s (DENN) have posted impressive gains over the past 6-8 months.

With the trend of people looking for more experiences and to have fun along with it, there are two names I’m looking at:

Dave and Busters (PLAY), which offers arcade and sports-themed games along with alcoholic beverages. The stock recently had a big 25% bounce off a double bottom at the $38 level.  I’d be a buyer on a pullback near $44 level.

RCI Hospitality (RICK) is a even more adult-oriented as it owns and operates upscale adult nightclubs, serving primarily businessmen and professionals under the names Rick’s Cabaret, Jaguars Club, Tootsie’s Cabaret, XTC Cabaret. Basically, these are places to watch a strip tease while you eat your strip steak.

The chart looks to be forming bullish box and is ready to break out to a new high.

Related: When Should We Trust Predictions? This Answer Will Surprise You! 

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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