2 Fast Food Stocks to Buy Ahead of a Potential Recession

Inflation slowed in November to 7.1% from a year ago, down sharply from the decades-high 9.1% increase in June. However, inflation still remains significantly higher than the Federal Reserve’s target inflation rate.

Moreover, the Fed is widely expected to raise its benchmark rate by a half-point on Wednesday. Economists have warned that the central bank’s aggressive rate hike regime could tip the U.S. economy into a recession next year.

Fast foods have become popular due to their relative convenience. As per the fast-food statistics, 83% of American families eat at fast-food restaurants at least once a week, and the average American household spends 10% of its annual income on fast food.

According to a report by ReportLinker, the global fast-food market is expected to grow to $628.55 billion in 2022 at a CAGR of 9.3%. Additionally, the market is expected to grow to $802.62 billion in 2026 at a CAGR of 6.3%.

Furthermore, the upcoming holiday season should further boost consumer spending on food. Also, as fast-food stocks prove great defensive options amid recessionary fears, investors might opt for quality fast-food stocks Domino’s Pizza Group plc (DPUKY) and Nathan’s Famous, Inc. (NATH).

Domino’s Pizza Group plc (DPUKY)

Based in Milton Keynes, the United Kingdom, DPUKY owns, operates, and franchises several Domino’s Pizza stores in the United Kingdom and the Republic of Ireland.

DPUKY’s trailing-12-month EBIT margin and net income margin of 17.94% and 14.09% are 127.3% and 179.2% higher than the industry averages of 7.89% and 5.05%, respectively.

During the 26 weeks ended June 26, 2022, DPUKY’s group revenue increased marginally year-over-year to £278.30 million ($339.05 million). Its profit for the period increased 1.9% year-over-year to £42.10 million ($51.29 million). At the same time, the company’s earnings per share from continuing and discontinued operations came at £9.50, representing an increase of 8% year-over-year.

The consensus revenue estimate of $743.04 million for the fiscal year 2023 indicates a 6% year-over-year increase. Over the past three months, the stock has gained 28.7%, closing the last trading session at $7.31. Moreover, the stock has gained 31.7% over the past month.

DPUKY’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

DPUKY has a B grade for Stability and Quality. Within the B-rated Restaurants industry, it is ranked #14 out of 44 stocks.

In addition to the POWR Ratings stated above, we have also rated DPUKY for Growth, Value, Momentum, and Sentiment. Click here to get all DPUKY ratings.

Nathan’s Famous, Inc. (NATH)

NATH operates in the food service industry as an owner of franchise restaurants under the Nathan’s Famous brand name. The company also sells products bearing Nathan’s Famous trademarks through various distribution channels.

In November, NATH declared a quarterly dividend of $0.45 per share. The company pays $1.80 annually as dividends, translating to a yield of 2.70% at the current price. This reflects its shareholder return ability.

NATH’s total revenues increased 14% year-over-year to $37.50 million in the fiscal second quarter ended September 25, 2022. During the same period, the company’s adjusted EBITDA and income from operations increased 32.8% and 33.3% year-over-year to $10.32 million and $9.91 million, respectively.

Its net income and income per share came in at $5.96 million and $1.46, up 68.1% and 69.8% year-over-year, respectively.

The stock has gained 29.1% over the past six months and 13.7% year-to-date to close its last trading session at $66.41.

It’s no surprise that NATH has an overall A rating, which translates to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Stability and Sentiment. NATH is ranked first within the same industry.

To see the additional POWR Ratings for Growth, Value, and Momentum for NATH, click here.

DPUKY shares were trading at $7.31 per share on Wednesday afternoon, up $0.11 (+1.53%). Year-to-date, DPUKY has declined -39.48%, versus a -13.79% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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