A Buffet Of Breakfast Stocks

By Gregory S. Davis | July 13, 2008 AAA

There's no better way to start the morning than a cup of joe, a glass of OJ, and a plateful of eggs and pancakes. While most commuters are finding their way to work, plenty of baby boomers have traded in their time at the office for social time at all-day breakfast restaurants like Denny's (Nasdaq:DENN), Bob Evans Farms (Nasdaq:BOBE) and International House of Pancakes, operated by DineEquity (NYSE:DIN), or a morning bite to-go at quick serve brands like McDonald's (NYSE:MCD).

Retail sales may be down, but even during an apparent recession, restaurants serving the first meal of the day could be a wise play on the shifting demographics within the U.S. (For related reading, check out Boomers: Twisting The Retirement Mindset.)

Big Money In Breakfast
Dining away from home is a great time saver and it is also a way for people to reconnect before a day full of activity. Breakfast as one of the best opportunities for foodservices to capture new growth due to individuals' increasingly busy schedules, according to the "2008 New American Diner Study" by Restaurants & Institutions.

The American Egg Board, the egg industries promotional arm, estimates that the breakfast market in the U.S. will grow into a $83 billion industry by 2015; it sat at $65 billion in 2007 according to market research firm Packaged Facts. Casual dinning establishments are taking notice and have taken the fight to the quick service set. Denny's, known for its all day breakfast, has new ads featuring its take-out boxes for the busiest customers who lack the time to sit and eat. McDonald's launched a new Chicken Biscuit sandwich earlier this year to compete with the popularity of Chick-fil-A's chicken breakfast sandwiches. Panera Bread (Nasdaq:PNRA) also began offering its own twist on breakfast sandwiches this year to capture its share of the growing market.

Investment Opportunities
McDonald's is the strongest choice among the group of breakfast providers mentioned here. In the casual dinning segment, DineEquity, parent company of IHOP, is a safer choice than Denny's which is trading below $3 per share. The unknown factor is the popularity of smaller local eateries. Each town has its own special mom-and-pop establishment with pictures on the walls of generations of dining patrons who they know on a first-name basis.

Parting Thoughts
The next time you're in a rush and you find yourself in line at your favorite breakfast eatery, take a moment to notice the makeup of its patrons. The combination of workers/retirees on the go and casual customers who have time to sit make following breakfast bodes well for investors interested in profiting from the growing popularity of the most important meal of the day.

Learn to put your money where your mouth is, in our related article Sinking Your Teeth Into Restaurant Stocks.

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