Take a Bite Out of Darden Restaurants

The past six weeks of volatility and downward pressure on stocks has created many excellent buying opportunities. Darden Restaurants(NYSE:DRI) has seen its share price drop and, having followed the company's performance for years, I can say that it is unwarranted.

I love its chains, Red Lobster and Olive Garden, both of which have shown consistent, long-term growth. I respect General Mills Inc. (NYSE:GIS), which gave birth to Darden and which eventually spun-off the company. I worked for General Mills from 1990 to 1992 and recall the careful strategic development and planning process that went into its positioning and expanding the family-style casual dining restaurant concept.

I also recall the emphasis and cultural imperative within General Mills --- fresh food and quality always.

These casual dining establishments have many loyal fans like me. Restaurants & Institutions magazine polls diners nationwide about their favorite restaurants, and Red Lobsters has been chosen as top seafood restaurant for the last 18 years. In Los Angeles, The Olive Garden is even becoming the place to clinch Hollywood deals. Darden's chains are affordable yet nice restaurants, and while people may feel their pocketbooks pinched, they will still occasionally treat themselves and their families to a night out. Where other restaurants tend to suffer in a difficult financial climate, Darden continues to thrive.

As a company, Darden has excellent financial fundamentals and has continued to eliminate unnecessary costs and improve margins. What's more, Darden plans to acquire RARE Hospitality in early October, whose restaurant chains include Longhorn Steakhouse. Once Darden integrates RARE, we should see a boost in its share price.

Type of Stock: A restaurant company that owns the successful casual dining chains Red Lobster and Olive Garden, and is about to acquire RARE Hospitality, that owns Longhorn Steakhouse.

Price Target: Currently at around $40, I think this is a great bargain. An August 20 Goldman Sachs Global Investment Research report calls for Darden to hit $50, and I think we might see it even exceed this and reach $55 in the next 12 months.

DRI 1-yr chart