3 Scrumptious Restaurant Stocks For 2011

The restaurant industry appears to be able to stem top-line difficulties by slowing new store growth and focusing on controlling expenses. Moderating food inflation also helped stabilize gross margins. 2011 offers promise as economic conditions are projected to improve and should allow the industry to return to benefitting from a secular trend that also lost its way during the current downturn. Below are three companies that warrant further consideration. (For information on investing with restaurant stocks, read Sinking Your Teeth Into Restaurant Stocks.)

IN PICTURES: 20 Tools For Building Up Your Portfolio Brinker International (NYSE:EAT) operates and franchises Chili's, Maggianos, and still has a small stake in Macaroni Grill. Chili's accounts for the vast majority of sales, which seem to have picked up as fewer people eat at home At mid year the company operated 1550 company-owned and franchised restaurants.

CEC Entertainment (NYSE:CEC) owns the Chuck E. Cheese's restaurant concept and has also benefited from increased attention. The company recently reported earnings that beat analyst expectations. The company has been overhauling its restaurants during the recession in an effort to keep families dining at its restaurants and so far it seems to be working. The company consists of approximately 500 locations, almost all in the U.S. and Canada.

Cracker Barrel (Nasdaq:CBRL) operates just under 600 Cracker Barrel Old Country Stores, which combine a restaurant and retailing concept along highways throughout the U.S. The company recently announced that its board of directors have declared a regular dividend to common sharesholders of $0.22 per share payable on February 7, 2011, to shareholders of record on January 21, 2011.

The Bottom Line
The above stocks currently stand out for their low valuations and the latter two are all currently trading around 14.5 times earnings. This is somewhat below industry averages and significantly below faster-growing peers such as Buffalo Wild Wings (Nasdaq:BWLD) and Chipotle Mexican Grill (NYSE:CMG). So instead of top-line growth opportunities, which may still benefit as time-strapped consumers eventually return to eating out, these firms offer the potential for valuation expansion and the return of excess capital to shareholders in the form of dividends and share buybacks.

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