Long ago, when I was in eighth grade, I was hanging out by the riverfront near my house on Cabot Farm with my friend and neighbor Jonathan, when we noticed a body floating at the river’s edge. I don’t remember whether we poked it with a stick or not, but given that the man was fully clothed and face down, there was no question that he was dead.
So we alerted my mother, who chose not to come see the body. Instead, she called the police, who came, along with the fire department, and hauled the body out and took it away.
The next day at school we were minor celebrities.
But that was the end of the affair. I remember no discussion at the dinner table about the man’s identity—a local drunk, I learned much later—and there was certainly no trauma. But I was reminded of that day recently when I myself was floating, one morning before work, at nearly the same spot. I, however, was floating face up, and breathing.
But I was floating so still and calm that my cousin Betsey, out walking her dog, yelled, “Are you alive?” And because my ears were in the water, I responded just the way a dead man would…until she yelled two more times.
At which point I reassured her that I was.
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So what has this to do with investing?
Just this: sometimes, a stock that looks dead is just resting.
CMG Stock — Back From the Dead
The last time I wrote about Chipotle (CMG) here was September 2016, when I asked, “Is Chipotle Stock a Bargain?”
Back then, the stock had fallen from a high of 759 to a low of 385, losing 49% of its value in 10 months.
The problem, of course, was that widespread news of E. coli, salmonella and norovirus at the firm’s restaurants had caused customers to look elsewhere for a delicious, low-cost meal.
But after looking at the numbers, which revealed falling numbers for every metric (except new restaurant openings), and the chart, which showed no upward momentum, I concluded that it was best to avoid the stock.
A year later, the stock was lower still. It finally bottomed at 247 in February 2018, a full 67% off its high.
It looked dead.
But all the while management was improving their food safety procedures (taking a lesson from McDonald’s (MCD)) and opening new stores.
And now Chipotle has come back to life!
In fact, CMG stock was featured in last week’s issue of Cabot Top Ten Trader.
Here’s what Chief Analyst Mike Cintolo had to say:
“Chipotle Mexican Grill needs no introduction—its fast-casual dining model and fresh, tasty Mexican cuisine made it a hit across the U.S. during the past decade. And it remains on the comeback trail after a couple of years in the doghouse as earnings collapsed following bad press from a string of customer illnesses at its restaurants. Recently, what’s most interesting is that Chipotle was actually hit with another piece of bad news this month; customers at an Ohio plant became ill after meat and pre-cooked food was left out at unsafe temperatures. Two years ago, that would have crushed the stock, but this time around, shares were hit for a day—and then quickly ramped back to new highs! While there’s still event risk here (another widespread outbreak of illnesses wouldn’t be good), Wall Street is more focused on the firm’s solid turnaround, with same-store sales (up 3.3% in Q2) accelerating, margins increasing, earnings picking up steam and a steady store expansion plan (140 new restaurants this year); all told, analysts see earnings up 27% this year and accelerating next year, to 40%. It’s not going to be the young buck it was a few years ago, but with big investors buying into the turnaround, we think CMG stock can be a solid performer in the months ahead.”
Of course, no growth analysis is complete without a look at the chart, and here’s what Mike had to say about that.
“CMG stock broke free from a bottoming base in April following its Q1 earnings report and made decent progress in the weeks after, rallying to 474. Then came a couple of sharp shakeouts with the market in late June and late July, each time seeing the stock briefly dip below its 50-day line. But since the latest dip, the buyers have been in control, albeit with some wiggles along the way.”
So, you could buy right here, but what I suggest is that you get Mike’s advice on a regular basis, by subscribing to Cabot Top Ten Trader.
Click here to learn Mike’s suggested buying range.
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