Better Buy: Restaurant Brands International vs. Starbucks

food restaurants

It’s been a roller-coaster ride of volatility this year. With a recession likely in the schedule for 2023, things may not be so quick to bounce back. Undoubtedly, it’s a tough environment to be a new investor. Even with all the uncertainty, it’s a far better time to be an investor today than a year ago. Indeed, the market selloff has been painful, but with valuations now looking quite good across the board, now is as good a time as any to start averaging into stocks on your wish list.

In this piece, we’ll shift our attention to the restaurant scene. Here in Canada, we have Restaurant Brands International (TSX:QSR), the legendary firm behind Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs. The stock is in the process of climbing out of a multi-year rut. Tough cost cuts and questionable moves have made QSR stock a sub-par investment over the past five years. Still, the next five years look more enticing, with a new plan and some new managers aboard.

Meanwhile, Starbucks (NASDAQ:SBUX) is a coffee giant that’s worth swapping one’s loonies for greenbacks. It’s been a rocky past few years for Starbucks, with big exec suite changes and a slew of pandemic-era headwinds that have weighed heavily. Despite the rocky road, though, Starbucks stands out as one of the most attractive growth plays in the restaurant scene today.

Let’s have a closer look at QSR and SBUX stocks to see which may be the better bet for Canadian investors heading into a recession year.

Restaurant Brands International

Restaurant Brands is the fast-food firm that we know and love as Canadian investors. The stock may have been sluggish over the years, but recent action suggests the name has woken up, with a run to new heights in sight. The $42.7 billion firm has a lot of growth potential under the hood. And with Patrick Doyle joining the team, Burger King could be on the cusp of becoming a dominant force in fast-food again after years of taking it on the chin at the hands of rivals in the space.

The stock trades at 3.2 times price to sales (P/S) and 21.4 times trailing price to earnings (P/E). Both metrics are well below restaurant industry averages. The stock also yields a juicy 3.23%. Undoubtedly, QSR is one of the more interesting turnaround plays in this market.

Unlike its peers, QSR will be able to flex its cheap, value-rich offerings in times of economic hardship. Lower-cost food is likely to be a hot seller in a recession year that has inflation still at alarmingly high levels. Given the tailwinds ahead, QSR stock deserves to trade at a multiple more in line with industry averages. I think QSR stock is an absolute bargain.

Starbucks

Starbucks stock is starting to heat up again, with shares now north of $101 per share. Undoubtedly, the new chief executive officer Laxman Narasimhan has his hands full, as he tries to steer Starbucks through a downturn. The appetite for premium coffee just isn’t as hot in tough times as it is in good times. Still, there’s no denying the brand power of Starbucks and its ability to bounce back after the toughest of environments. Brand power has been critical in helping the firm navigate through an inflationary world.

Looking ahead, Starbucks is poised to take its growth in China to the next level. If all goes well, Starbucks could be one of the most enticing earnings-growth companies right here. If anything, Starbucks is a stealth China growth play that could pay major dividends for years to come.

The stock trades at 35.9 times trailing P/E and 3.7 times P/S. With a 2.1% dividend yield and solid positive momentum behind the stock, I’d argue SBUX is a worthy pick-up right here.

Better buy?

It’s hard to choose between QSR and SBUX stock. I own both in my personal portfolio. If I had to choose one, I’d have to go with QSR stock. It’s cheaper with grand ambitions and a juicier dividend.

The post Better Buy: Restaurant Brands International vs. Starbucks appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has positions in Restaurant Brands International and Starbucks. The Motley Fool recommends Restaurant Brands International. The Motley Fool has a disclosure policy.