Chow Down on Almost Restaurant ETFs
Despite what would appear to be an obvious and good idea and the advice dispensed previously in this space, a restaurant ETF still does not exist.
That is too bad because not only does it mean investors need to pay triple-digit prices for the likes of Chipotle (NYSE: CMG) and Panera (NASDAQ: PNRA), but it also means ETF investors are left with less-than-direct routes for playing a possible bounce in restaurant stocks in second half of this year.
"We expect U.S. economy to accelerate in the second half of the year. U.S. GDP grew 2.5% in the first quarter," S&P Capital IQ said in a new research note. "Standard & Poor's Economics projects that growth will slow to 1.8% in the second quarter, but rebound to 5.0% in the third quarter and 5.2% in the fourth quarter, driven by continued momentum in
labor market and a rebound in the residential housing market. Standard & Poor's Economics sees the U.S. employment rate dropping to 7.1% by the end of the year from April's reading of 7.5%, and estimates U.S. housing starts for 2013 at 1.020 million, up 31% from 780,000 in 2012."
S&P Capital pinpoints small purchases, such as going out to dinner, as areas of discretionary spending that will most likely benefit from an improving economy.
"We think these economic projections should bode well for the restaurant sub-industry. We think small discretionary purchases such as dining out will be the one segment to recover from an improving economy. We also believe some restaurant companies have better positioned themselves by streamlining their operations," said the research firm.
S&P Capital IQ has four-star ratings on the following stocks: Dow component McDonald's (NYSE: MCD), Yum Brands (NYSE: YUM), Brinker International (NYSE: EAT), Starbucks (NASDAQ: SBUX), Domino's Pizza (NYSE: DPZ) and Papa John's (NASDAQ: PZZA).
With no restaurant ETF available, investors should consider turning tot the Consumer Discretionary Select SPDR (NYSE: XLY), which S&P Capital IQ rates Overweight. McDonald's and Starbucks are top-10 holdings in that ETF, combing for over 8.4 percent of the fund's weight. Yum receives a weight of 1.8 percent in XLY.
To its credit, XLY has been the best-performing of the nine SPDRs ETFs over the past three years. However, the ETF's restaurant exposure is scant.
The high-flying PowerShares Dynamic Food & Beverage Portfolio (NYSE: PBJ) holds four restaurant that combine for over 11 percent of that ETF's weight, but none of those four names are among the stocks highlighted by S&P Capital IQ in the note.
The PowerShares Dynamic Leisure and Entertainment Portfolio (NYSE: PEJ) is a better restaurant bet with 10 restaurant stocks among its 30 holdings. Starbucks is PEJ's second-largest holding with a weight of 5.14 percent and Papa John's receives a weight of 2.79 percent in PEJ.
Of the ETFs mentioned here, PEJ is the best year-to-date performer with a gain of 23.3 percent. PBJ and XLY are up 22.6 percent and 21.3 percent, respectively.
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