There are few things more profitable in the stock market than finding a long-term bullish economic trend and identifying a backdoor way to invest in the trend.

#-ad_banner-#Major economic trends are often well known the observant investor, and many of them invest directly into the major companies riding the trend. While this tactic can and does work miracles at the start of any economic or societal trend, the profit potential becomes diluted when the trend matures. Shifting consumer tastes can turn one company’s products from a huge hit into a has-been at the drop of a hat.

The key to long-term success is to locate those under the radar, backdoor companies that are crucial for supporting the overall trend but aren’t the obvious financial media darlings. These companies are often those that support or complement the more obvious ones.

Today’s Big Trend
A major trend that appears poised to continue is the shift to dining out and away from at-home meals.

In 2015, for the first time, restaurant spending surpassed grocery store expenditures. The U.S. Department of Commerce reported that Americans spent $52.3 billion at restaurants and bars compared to $49.7 billion in grocery stores.

It is the first time grocery spending has fallen behind restaurant sales since the department started tracking these statistics in 1990. The article attributes soaring restaurant sales to a combination of factors, including a drop in gas prices and the food preferences of Millennials.

University of Alabama economics professor Dr. Wafa Hakim Orman explained the growth succinctly: “Mothers simply have less time to cook and clean up afterward. Working parents have more disposable income thanks to the second job. Technically speaking, the ‘opportunity cost’ of home cooking about eating out or getting takeout has increased. At the same time, many restaurants have been quick to respond to consumer demand for healthier, organic, or locally sourced food (sometimes all three), making them a more attractive destination.“

Food consultant Technomic explains the trend this way, “Increasing numbers of two-income families, with less time to prepare meals, eat out or take out more regularly. Spending on food consumed at home has dropped from 70% of total food expenditures in 1975 to around 50% in 2015.“

Despite shifts within the trend, as mentioned by my recent article on the dip in the fast casual restaurant segment, the overall trend remains intact.

The Trend’s Guaranteed Winner?
I have identified a restaurant-related company that, unlike restaurant stocks themselves, is not held captive by fickle consumer tastes. The style of restaurant dining is irrelevant to the success of this company. The only thing that matters is that Americans continue to dine at restaurants.

The company is the newly-public US Foods (NYSE: USFD). US Foods, recently taken public by its private equity owners, is the United States’ second-largest restaurant food distributor. According to Barrons, the majority of its sales growth is with independent and smaller chains, a niche that US Foods seems to work well in. And there are benefits to this approach. Smaller operations often seek market analytics, inventory management systems, and added food preparation, which all are large profit boosters for distributors.

The company boasts revenues of $23 billion annually, with 26% from independents and small chains and the remainder from the government, institutional, and large chains. Controlling about 9% of the entire restaurant market, US Foods is second only to Sysco (NYSE: SYY), with its 13% penetration, as a national distributor.

Interestingly, Sysco attempted to purchase US Foods for $8.2 billion back in 2013. Unfortunately for the companies, but fortunately for us, antitrust concerns quashed the proposed deal in 2015. Imagine the potential profits should this deal be proposed again with the antitrust concerns addressed! And today this seems more likely, as with the Trump administration we will likely see a more lenient government regarding regulations.

The 2017 projections are very positive and suggest improved margins. Bullish analysts have forecasted earnings of $1.24 a share on just under $23 billion in sales against $168 million, or 98 cents a share, on $23 billion in sales in 2015.

Interestingly, US Foods trades at 16 times projected 2018 earnings. Sysco trades at 21 times forecasted earnings on the same time frame. US Food’s debt-to-EBITDA ratio posts at 3.8 times but could fall due to the IPO. If that happens, dividends and share buybacks become a distinct possibility, further adding to the bullish case.

Risks To Consider: The IPO lockup was removed from the shares in November. However, private equity groups who owned the company before the IPO, KKR and Clayton Dubilier & Rice, still hold 76% of the shares. Should these shareholders start selling the stock, the price could fall sharply.

Action To Take: Buy now on the pullback in the $27.00 per share zone. The suggested stops are at $25.17 per share, and the target price is $36.00 per share.

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