Looking for Growth? Cramer Recommends Chipotle’s Stock
Wall Street was hammered for a fifth-straight session on Tuesday, prompting “Mad Money” host Jim Cramer to recommend investors buy select high-growth stocks.
“These are all stocks that you can safely buy into this pullback as long as you use wide scales on the way down, because their long-term stories are so powerful that you now they'll still be alive and kicking with plenty of juice whenever the dust settles,” Cramer said, referring to Apple and Starbucks as examples.
Chipotle Mexican Grill is yet another stock that can be added to Cramer’s “Ultimate Growth Portfolio for 2012.” Since the beginning of the year, the restaurant chain operator’s stock has been skyrocketing. It had been very difficult to get this stock at discount, but investors now have an opportunity to buy the stock at a slight discount thanks to the recent sell-off. As mentioned earlier, he wouldn’t buy all at once, though. He suggests buying just a few shares at a time as the stock falls with the greater market.
So what’s to like about Chipotle? Cramer went through his 10-point system for evaluating high-growth plays.
First, Chipotle has potential for long-term growth with great visibility. In other words, it’s easy to see where Chipotle’s future growth might come from, such as management’s forecast for strong same-store sales and plans to open up to 165 new locations this year.
Second, the fast food business is big enough to support Chipotle’s growth forecast.
Third, Cramer thinks Chipotle will remain competitive because it practically invented the “healthy eating” concept, at least in the fast food world.
Fourth, Chipotle doesn’t currently offer a dividend, but Cramer said management will likely continue to invest in the business, which should ultimately create value for shareholders.
Fifth, the restaurant chain is expanding internationally with plans underway in Europe.
Sixth, Cramer said Chipotle has a very strong balance sheet, which will support the growth we’re looking for.
Seventh, Chipotle currently sells for 38 times next year's earnings estimates, which might sound expensive, but given the company has a 22 percent long-term growth rate, it means Chipotle has a PEG ratio of 1.72. To Cramer, that’s totally reasonable for such a “high quality business.”
Eighth, Cramer said the company’s management team, including and especially CEO Steve Ells, is more than capable of executing the growth plan.
Ninth, Chipotle isn’t currently weighed down by global economic growth or the domestic economy, Cramer said. It’s a play on healthy eating, which is a strong secular trend.
Finally, Cramer thinks Chipotle will be able to maintain its margins being as its restaurant level margins increased by 20 basis points last quarter despite higher food costs.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? firstname.lastname@example.org
Questions, comments, suggestions for the Mad Money website? email@example.com