As the calendar inches closer to the fourth quarter, CNBC's Jim Cramer said Thursday Chipotle Mexican Grill will be a top target on the market as money managers get ready to double down on the highest winners of 2019.
The stock has trounced the S&P 500 this year, outperforming the broad index about 92% to 20% year-to-date.
"Usually when hedge funds and mutual funds anoint … their favorite winners going into the fourth quarter, those stocks keep winning until the big boys take profits in January," the "Mad Money" host said.
Equity in the fast-casual chain has nearly doubled in price since the start of 2019, closing the session above $832 a piece. But Cramer waved a red flag as shares are trading for 48-times 2020 earnings estimates.
"I feel like you're chasing if you're trying to buy it up here," he warned. "However, if you want to own Chipotle as a long-term investment, you have my blessing to start building a position here, as long as you wait for a pullback before you add to that position."
Since bottoming at about $247 in Feb. 2018, in the wake of two food safety scares, the stock has been on a bull run. Cramer credits CEO Brian Niccol, who sought to turn around the company with several initiatives.
Under his tutelage, Chipotle has remodeled stores, digitized services, added food items, launched a loyalty program and stepped up its marketing to millennials to drive traffic at restaurants. Digital sales almost doubled in the second quarter as same-store sales grew by 10%, topping the 8.3% increase that Wall Street analysts had ordered.
Sales growth was in the low-single digits when Niccol first joined the company, Cramer noted. Earlier this month, Wedbush analyst Nick Setyan in a note issued an upgrade on Chipotle to outperform from neutral and raised the price target to $980 from $780.
"I wouldn't be surprised if Chipotle can keep climbing through the end of the year. When they report again in about a month, they'll be going up against easy comparisons," he added.
While he expects the stock to finish 2019 strong, Cramer cautioned that it will be tough for Chipotle restaurants to match its comp sales pace in 2020. Additionally, those same big institutional investors tend to trim their holdings and cash in on some profit in their portfolio in January.
"That's why it's a mistake to buy all at once," he said. "I think you need to come at this one carefully, wait for a dip, perhaps to the $700s, and then you pounce on the rest."