The U.S. restaurant industry is highly competitive. Restaurant operators range from large chains, like McDonald’s and Burger King, to independent businesses and smaller chains, like Ruby Tuesday (symbol RT on New York). We cover Ruby Tuesday in Stock Pickers Digest, our newsletter for aggressive investing.

(Ruby Tuesday has shot up 42% for us in the past year, and a continued economic rebound could help push this hot stock pick’s share price even higher. See below for more on the company’s future prospects.)

Overall, the U.S. restaurant industry has faced tough challenges in the past two years. That’s because the economic downturn has prompted more consumers to eat at home, or to spend less when they dine out.

Many U.S restaurant hot stock picks are cutting costs and improving their menus

The best U.S. restaurants have done a good job of cutting costs during the slowdown. Some have improved their menus by introducing new items and focusing on value-priced meals.

A few have gone further and taken advantage of the slowdown to expand into new markets with strong growth potential. That has helped these hot stock picks report improved results. It also puts them in a good position to profit as the global economy continues to improve.

In light of the U.S. restaurant industry’s improved outlook, we updated our buy/sell/hold advice on Ruby Tuesday in a recent Stock Pickers Digest hotline.

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Ruby Tuesday offers casual American dining. The company owns 656 of its U.S. restaurants; franchisees operate 165 outlets in the U.S. and 58 overseas.

Ruby Tuesday saw its earnings drop sharply during the downturn. To attract more customers and increase sales, the company has been focusing on improving its menu and upgrading its service: Its menu now includes a wide variety of appetizers, handcrafted burgers (including beef, bison, turkey, chicken and crab), a 46-item salad bar, fish, ribs and steaks.

Earnings rose sharply in the latest quarter

The company’s earnings per share rose 17.9% in the three months ended June 1, 2010. That’s mainly because it closed stores, made better use of its workers and cut costs.

Sales fell slightly, because Ruby Tuesday closed 16 restaurants since the year-earlier quarter. However, savings from these closures are helping the company cut its debt: it has paid down $200.1 million of debt over the last year. Its remaining $276.5 million of long-term debt is now a more manageable 40.6% its $680.9-million market cap.

Ruby Tuesday is building fewer new restaurants and spending less on refurbishing older ones. In its 2011 fiscal year, which is now underway, it plans to open just two new company-owned restaurants, and will close seven to nine restaurants.

Franchisees will probably open eight to 13 new outlets, including up to 10 outside of the U.S.

Ruby Tuesday’s recent moves should put it in a good position to continue to profit in an ongoing recovery. We’ll continue to monitor the stock and update our buy/sell/hold advice as necessary in Stock Pickers Digest.

You can get our full analysis of Ruby Tuesday and dozens of other aggressive picks in Stock Pickers Digest. What’s more, you can get the latest issue absolutely free. Click here to learn how.