Inflation is not dead, and interest rates will not soon come down materially, as we have repeatedly suggested. The 0.5% MTM April increase in Producer Price Index, though softened by a slightly weaker CPI, virtually guarantees that. You should know by now that this columnist favors gold as the “real money”, long term, since unbacked “fiat” paper currencies have never lasted. For investors we favor gold mining stocks, with operating margins levered to the price of bullion. With justified humility we report that, while bullion prices have doubled over ten years, the gold mining stocks are down over 50% from their highs. In addition to bygone management mistakes, the operating leverage did not assert itself because the rate of rise in bullion did not overcome higher labor, energy, and other mining expenses. At this point, however, while gold bullion can be expected to continue to rise, due to (1) inflation (2) continued central bank accumulation (3) public buying in China, India, Europe, Russia, etc., the times otherwise are a’changin’. Gold bullion is up almost 20% in just the last four months and there is every indication that the current price range of $2,300 to $2,400 per ounce can be sustained, on its way to over $5,000/oz., in our opinion. Since the average gold price in Q1’24 was about 10% higher (at $2.075/oz.) vs. Q1’23, earnings and cash flow have been reported as much as 50% higher. Even more important: with gold in April and May up about 20% YTY, operating results in Q2’24 could be up 75-100%. This new reality is perhaps dawning on investors, as the gold mining stocks were up 4.2% in April, with gold bullion up 2.1%. If gold bullion were to double, the quicker the better, the gold miners should/could quadruple or more. GDX, the gold mining ETF, is a simple adequately effective way to participate.

Restaurant earnings in Q1’24 were generally as expected, largely describing an industry of “haves and have nots”. While most “mature” companies have modest equity valuations, a handful of the 45 publicly held restaurant companies sport handsome valuations. Wall Street pays up for growth and these “best of breed” companies produce above average (10%+) unit growth, attractive four wall economics, and lots of “white space” for expansion. These situations with operating momentum may not attract Warren Buffet, but investors and management can make 5-10x their money while the music is playing. The key, of course, is the continuing performance of your growth candidate, because a short-term operating stumble just after you have entered (at an already lofty valuation) can turn out to be expensive. A case in point was last week’s 25% decline in First Watch (FWRG), a Company we favor, far from overvalued, after their first quarter traffic flattened. The current situations, apparently “priced for perfection”, listed in order of our rough estimate of Enterprise Value compared to Calendar 2024 Adjusted EBITDA are:  Sweetgreen (100x), CAVA Group (85x), Wingstop (65x), Kura Sushi (60x), Chipotle (40x), Dutch Bros (30x), Shake Shack (25x), and First Watch (11x). Space does not allow an in-depth description of each of these differing situations but we consider that: Sweetgreen has run up 150% in the last few months, as their operating metrics have improved and their robotic efforts indicate promise. The stock, however (at 100x ’24 EBITDA) has moved too much too soon for our money. CAVA has had a huge second run after its IPO, and it remains to be seen what their margins look like as they build stores from scratch rather than convert Zoe’s. Wingstop (WING), Kura Sushi (KRUS), and Chipotle (CMG) are each doing well, but are far from inexpensive and we don’t see an “inflection point” that will drive the valuation even higher. Shake Shack’s (SHAK) valuation is more reasonable than at any time since they have been public, but their days of hyper revenue growth are behind them, and we think 25x is an adequate EBITDA multiple for store level margins in the area of 20%, cash on cash store level returns of 25-30%, and 15-20% long term growth in units, earnings and cash flow. Leaving the most interesting investment possibilities to last: First Watch (FWRG) has an obviously superior hospitality culture, excellent unit level economics, and virtually unlimited annual 15-20% growth potential. Down 25% from its high due to a minor disappointment, FWRG, at a reasonable 11x ’24 Adjusted EBITDA, seems attractive.  In a more exciting vein is Dutch Bros (BROS), with their 850-unit chain of $2M/yr. double drive thru coffee shops. BROS, also with a distinctive operating culture, is growing units at 20%+ and Adjusted EBITDA at 30-40%, as they move toward their long-term target of 4,000 US locations. Their Enterprise Value, at about 30x ’24 Adjusted EBITDA, is expensive but should contract to the low 20s on ’25 numbers, and the big winners (e.g. WING, CMG, CAVA, KURA) don’t get much cheaper than that. BROS’ 10% SSS in Q1’24, contrasted to Starbucks’ negative sales and traffic, says a lot. As we go to press, a multi-million share sale by their private equity sponsor may be creating a buying opportunity.