MW Is it time to invest in the real TACO trade? Mexican restaurants now outsell pizza places.

By Charles Passy

Taco Tuesday is becoming Taco Everyday, analysts say. But not every publicly traded Mexican chain has fared well on Wall Street lately.

Investors may be talking about the TACO trade these days, a reference to the market swings that have resulted from President Trump announcing and then reversing his tariff policies. TACO stands for Trump Always Chickens Out, an acronym that the president has naturally rebuked.

But should investors instead be talking about the real taco trade? As in buying stock in restaurant companies dedicated to the Mexican favorite.

It's a question worth asking, given the country's growing appetite for the south-of-the-border cuisine. Mexican now tops all international food styles and categories in the U.S., at least in terms of the number of restaurants, according to research firm Datassential.

Specifically, there are 83,947 Mexican establishments, compared with 77,093 pizza restaurants, 30,536 Chinese ones and 20,027 Italian. Even if you combine pizza and Italian into a broader Italian category, Mexican lands in a very solid second place.

From a sales standpoint, Mexican food is also a top dining category among limited-service restaurants - meaning fast-food and fast-casual combined - and generated nearly $34 billion in 2024, about a 9% increase over the prior year, according to research firm Technomic. Pizza was behind Mexican, with almost $31 billion in revenue.

Restaurant-industry analysts say the spicy Mexican flavor profile simply suits the adventuresome American palate these days. And these experts wouldn't be surprised to see the boom in Mexican restaurants continue: Taco Tuesday is quickly becoming Taco Everyday, they say.

"There are great long-term trends there," said Sharon Zackfia, an analyst with William Blair.

But when it comes to investing in the trend, things get a bit complicated, since the major public companies in the space have different stories to tell - and their year-to-date stock performances have been all over the map.

Just consider the category's two biggest players: Taco Bell, which is part of Yum Brands (YUM), and Chipotle Mexican Grill $(CMG)$.

Taco Bell dominates when it comes to Mexican fast-food and is ranked as the fourth top restaurant chain in Technomic's annual survey, with $16.2 billion in sales. Chipotle, which helped define Mexican fast-casual, if not fast-casual in general, is not far behind - it ranked seventh with $11.2 billion in sales.

Yum, whose portfolio also includes KFC and Pizza Hut, has seen its stock price increase more than 7% since the start of the year. And its Taco Bell division has seemingly been a big part of its success, with the chain's same-store sales growing 9%, according to Yum's most recent quarterly earnings report.

Chipotle, on the other hand, hasn't fared as well on Wall Street, with a year-to-date decline of around 14% in its stock price. The company's same-store sales fell for the first time since 2020, as per its latest quarterly earnings.

Still, some analysts note that Chipotle's slight revenue dip - same-store sales declined by 0.4% - may be attributable to the fact that the company has done so well in recent years and it's inevitably a challenge to maintain momentum at a certain point.

"They're against their toughest compare right now," said Kevin McCarthy, an analyst with Neuberger Berman.

Chipotle Chief Financial Officer Adam Rymer said the chain is still valued by its customers for offering a good amount of food for the money and for the quality of its ingredients. Plus, Rymer said, "Looking forward, our marketing team has an enhanced plan for this summer and the remainder of the year to make Chipotle more visible, more relevant and more loved to drive difference, drive purchase and drive culture."

Meanwhile, even with Taco Bell's success, analysts caution that you can't invest in Taco Bell by itself - you have to look at Yum as a whole and weigh how its other divisions are doing. In that regard, it may be worth noting that Pizza Hut's same-store sales declined by 2%, according to the recent quarterly report.

"It's certainly not a pure play on Mexican," said Mark Kalinowski of Kalinowski Equity Research regarding Yum.

In a statement following the latest earnings, Yum CEO David Gibbs pointed to strengths throughout the entire business, saying he's confident that growth strategies "will continue to position the company for long-term success."

Other publicly traded restaurant companies with a stake in the Mexican category have yet other stories to tell.

In the case of Darden Restaurants $(DRI)$, the company behind Olive Garden and LongHorn Steakhouse, it's approaching the category anew, having recently acquired Chuy's, a full-service Tex-Mex chain, for about $605 million. Darden President and CEO Rick Cardenas cited Chuy's "strong performance and growth potential" in announcing the news.

Conversely, Jack in the Box $(JACK)$ is exploring selling Del Taco, the Mexican chain it acquired in 2022 for $585 million. That said, the seemingly burger-centric Jack in the Box is itself known for tacos - The Wall Street Journal once reported that it sells more than 500 million of them a year.

Darden and Jack in the Box didn't respond to MarketWatch requests for comment.

As popular as Mexican food may be right now, the category could still face some headwinds, analysts and other experts note.

For starters, all restaurants have had to contend with a financially cautious consumer base of late, especially as a result of the inflation of recent years. And while people could continue to dine out, they might not be ordering as much, warns Izzy Kharasch, president of Hospitality Works, a consulting firm based in Chicago.

"Now instead of having two appetizers they're having one," he said.

There's also concern among restaurants about, well, the TACO trade - or more to the point, about the threat of tariffs and how that could affect the cost of goods. With Mexican restaurants, that especially applies to avocados, which are often sourced from abroad, including from Mexico itself. And you can't have a true guacamole without those avocados.

Of course, the tariff situation is still in flux. And in the case of Mexican-sourced avocados, no tariffs are currently in place. But fears remain about what the future may bring. That said, in the case of Chipotle, it has diversified its sourcing of avocados so it's not solely dependent on a single country for supply.

In the end, there's still a great deal of bullishness among analysts and other experts regarding the prospects for Mexican restaurants. They say it wouldn't be surprising to see other Mexican concepts go public, with the Qdoba chain being one prominent example. A Qdoba spokesperson said the company has no such plans at this time, however.

There's also the possibility that a major burger chain could add a taco to its menu, not unlike what Jack in the Box has already done. Some analysts even wonder if McDonald's $(MCD)$ might one day offer a McTaco.

It could be an operational challenge for the Golden Arches chain, since making tacos requires different procedures than making burgers, analysts note. Then again, McDonald's, which didn't respond to a request for comment, just announced it was reintroducing its Snack Wraps, which are made with tortillas - not unlike a taco.

So could a McTaco be that far behind? While McCarthy, the Neuberger Berman analyst, said he doesn't see it happening anytime soon, he can't predict what the long-term future holds.

"I wouldn't rule it out," McCarthy added.

-Charles Passy

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June 04, 2025 11:54 ET (15:54 GMT)

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