With the economy in the toilet, a lot of people are reluctant to go and spend big on restaurant cuisine.

By itself that would be a good reason not to invest in restaurant companies. But restaurant stocks have been absolutely smoked of late, so you have to wonder how much of the bad news is already priced in. Take a look:

• DineEquity (NYSE: DIN), parent company of IHOP and Applbee's: closed on Friday at $11.13, 83% off its 52-week high.
• The Cheesecake Factory (NASDAQ: CAKE): closed Friday at $10.96, 56% off its 52-week high.
• CKE Restaurants (NYSE: CKR), parent company of Carl Jr.'s and Hardee's: closed Friday at $8.88, 47% off its 52-week high.
• Starbucks (NASDAQ: SBUX): closed Friday at $11.08, 59% off its 52-week high.

With very few exceptions, restaurant stocks have been pulvarized of late. It's true that the bad times may last awhile longer but in the grand scheme of things, a few quarters -- or even a few years -- of poor sales and earnings have very little bearing on the creation of long-term shareholder value. That is if a company is well-capitalized and has little leverage.

I think bargain hunters who buy and hold restaurant stocks trading at low price/earnings ratios with very little debt and strong brands will do quite well here.

One stock to avoid: DineEquity, which trashed its balance sheet with the Applebee's acquisition and may have to head back to the market to raise cash at the expense of current shareholders. The Wall Street Journal reports (subscription required) on unprecedented promotions and store closings for some leading chains.

With closings and consolidation, well-managed companies with good balance sheets should come out of this mess OK, and investors who get in at depressed prices should prosper.