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Tuesday, August 6, 2013 - 13:00

The Best Way To Profit From This $32 Billion Industry

Tuesday, August 6, 2013 - 1:00pm

The statistics are mind-blowing.

Close to 93% of Americans eat this cuisine every month. More than 3 billion units are sold yearly in the United States alone, an annual revenue stream of $32 billion. There are 70,000 U.S.-based restaurants that serve this dish, yet a full 65% of the restaurants are small and independently owned. Clearly, this leaves a huge upside for corporate chains to exploit this enormous market.

If you haven't guessed, I'm talking about pizza. Yes, the humble pizza pie produces a gigantic revenue stream and is loved by millions worldwide.

Everyone has their favorite pizzeria and type of pizza. In my case, my favorite remains Fiori's Pizzaria in Pittsburgh. This hole-in-the wall restaurant truly has the best pizza on earth. I don't know if it's the water, the heaps of mozzarella cheese, the slightly sweet crust, or a combination thereof, but something really makes this pizza stand out of from the crowd. I know each time I make a trip to the Steel City, it's on my list of must-dos.

While my favorite pizza is a craft-made masterpiece by Pittsburgh's finest pizzaria, I have also had quite a few pizzas from the chain restaurants. Many pizza connoisseurs dismiss these pizzas as being too bland and predictable. However, one of the leading chains is making serious inroads toward a very respectable pizza.

I am talking about the world's second-largest chain, Domino's Pizza (NYSE: DPZ).

In college, I ate too much Domino's pizza, since it was one of the few places that delivered to my school and always had specials for poor students. Keep in mind, this was in the late 1980s when Domino's truly tasted like cardboard compared to good pizza. For a starving student who was tired of the cafeteria, however, it tasted like a slice of heaven.

After tiring of it in college, I avoided Domino's for years. But as a traveler, I would order Domino's every so often, usually when it was the only pizza available late at night. Over the past five years, I have noticed a distinct improvement in the quality and taste of Domino's. Domino's pizzas have progressed from bland, lifeless pies to ones bursting with flavor, taste and texture. While it will likely never rival the Pittsburgh masters in my book, Domino's can hold its own against nearly everything on the market.

Domino's same-store sales soared 6.7% in the U.S. and 5.8% internationally in its most recent quarter from a year ago.

Consumers have noticed the improvement and are lifting the company's bottom line. Domino's same-store sales soared 6.7% in the U.S. and 5.8% internationally in its most recent quarter from a year ago. In addition, the company reported a 19% rise in income. Domino's credits its new handmade pan pizza as the driver for the current upswing in results.

(Full disclosure: While researching this stock, I ordered a Domino's handmade pan pizza to see what all the hype was about. I was not disappointed. This is a refined product that has all the factors that make a pizza great. In this world of corporate blandness, it's refreshing to eat something of such quality.)

In the technical picture, shares have bounced from the 50-day simple moving average and are making an assault on the 52-week high of $64. Shares have been in an uptrend since April 25, with the 50-day moving average acting as solid support.

Risks to Consider: Domino's has the risk of a competitor making a better pizza. Consumer tastes are fickle and can change at any time. In addition, the company is sensitive to the economy as people spend less in restaurants during economic slowdowns. Always be sure to use stops and position size properly when investing.

Action to Take --> I strongly think that Domino's has cracked the taste barrier for pizza chains. This means more consumers, after trying a Domino's pie, will be likely to become steady customers. Therefore, I like Domino's as an investment when the high price of $64 is broken on the upside, or when the price drops back to the 50-day simple moving average support level. My 12-month target is $75 on the shares.

P.S. -- What pairs nicely with a pizza? Soda, of course -- but did you know there's a soda company that's growing profits 12 times faster than Coke and 60 times faster than Pepsi? Click here to get the name of this stock now while it's still largely unknown.

David Goodboy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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