Investors are making a meal out of restaurant names like Cava. While Cava and other eateries like Kura Sushi and Chipotle Mexican Grill all target different markets with varying price points, it's novelty that brings them all to the table.
A core tenet of Investor's Business Daily founder Bill O'Neil's strategy is to choose companies offering a novelty or are proving to be the best in the field. When it comes to restaurants, these can sometimes be the same: a restaurant stock can be the best by default, being one of the few players in its product niche.
Cava Stock's Mediterranean Food Niche
Cava occupies a niche demand for fast-casual Mediterranean cuisine, serving up specialties like roasted lamb, tzatziki and olive-based garnishes and ingredients. Its positioning as one of the few nationwide chains specializing in Mediterranean food makes Cava stock appealing to investors hoping to ride the chain's expansion.
"This is what attracted me about Chipotle back in 2010 — it was that expansion phase," Justin Nielsen, market research director at IBD, said on Investor's Business Daily's "Investing with IBD" podcast.
Audio Version Of Podcast Episode
Cava stock, which came public in June 2023, is seeing its IBD Composite Rating climb to 92 out of 99, according to IBD Research. The stock broke out of a sweeping cup-and-handle pattern that began in August last year and ended in January. The stock has continued its upward march, passing its buy point earlier this month.
Cava stock currently has a Relative Strength Rating of 92, and is up 13% from its pivot point. The stock is ranked No. 9 in the restaurant industry group, with ArcosDorados, the McDonald's franchise holder in Latin America, holding the top spot in the group.
Cava Stock's Unexpected Parallel With Nvidia
Conviction is another important part of deciding to invest in a stock. It means understanding what a stock offers and how it might lead to future returns. Early investors in Nvidia, for instance, saw its niche in making processors for video games, a niche that expanded when crypto miners and eventually generative AI developers found Nvidia's GPUs ideally suited for their demands.
For Cava stock, understanding what makes it unique simply means going out for lunch. "I've tried it now, so I have a little more conviction to it," said Irusha Peiris, O'Neil Global portfolio manager.
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