Ignore the News, Listen to the Market

Heed the Market’s Message

A Green Take on Fast Food

In Case You Missed It

I’m going to start today’s issue with our Stock Market Analysis Video with Cabot Market Letter and Cabot Top Ten Report Editor Michael Cintolo because I don’t want you to miss his important message.

The market gave up the ghost this week, with major indexes breaking through key support levels on huge volume. We’re in a correction and you should be defensive.

But don’t get paralyzed or overemotional. It’s important to take action and heed the market’s message while ignoring the news. Mike offers some tips on prudent portfolio management and what to do now to avoid getting slaughtered.

Stocks discussed include Green Mountain Coffee Roasters (GMCR), Baidu (BIDU), Netflix (NFLX) and Coinstar (CSTR).

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In less anxiety-producing news, this week brought a report from the Economics and Statistics Administration, a division of the U.S. Department of Commerce on the growth of the Green economy.

According to the report:

Green products and services made up 1% to 2% of the total private business economy in 2007.

Green employment, while still a relatively small part of the economy, ranged from 1.8 million to 2.4 million jobs. The service sector made up the majority of the Green business activity, with agriculture and construction making up much of the rest.

And there are many reasons to think the Green economy has grown since 2007 (the year the report studied), such as increased consumer interest in Green products and services and high energy prices that could lead to rising interest in energy-efficient products and services.

The report also noted the U.S. American Recovery and Reinvestment Act of 2009, which allocated $90 billion to promote innovation and growth in Green business and Green jobs.

The New York Times, which reported on the data, observed that another report found that the president’s goal of having renewables provide 25% of the country’s energy by 2025 would translate into about 297,000 new jobs.

I don’t think there’s any doubt that the Green economy is growing for all the reasons stated above. Consumers have shown a bigger interest in Green products: Clorox, of all companies, got into the Green business in recent years and even fast-food chains like Chipotle Mexican Grill (CMG) are getting in on the act.

Cabot Green Investor Editor Brendan Coffey wrote this about Chipotle in March:

“One Harris Interactive poll of 3,110 adults last autumn found 32% of people say Green products are important to them and are willing to pay a bit of a premium, while 26% of those polled said Green issues are “extremely” or “very” important to them when deciding which products or services to buy. A separate Harris poll around the same time found that 9% of adults have purposefully avoided patronizing companies they feel are not environmentally friendly, while 11% have sought out environmentally friendly businesses to patronize.

“What does all that mean? Being Green may not be the sole ticket to success with consumers, but it offers a significant edge, especially when 11% of people will make more of an effort to seek you out over the typical fast food joint. For the rest of consumers, having good food will be the deciding factor.

“Chipotle enjoys great success in both areas, combining very good food in a casual walk-in, counter service setting with the organic and natural ingredients a good segment of the population prefers. You’ve likely heard of Chipotle, since it has been a strong performing stock nearly the whole four years since McDonald’s spun the company off in an IPO. It catches our eye now because it has been showing excellent share gains and institutional accumulation even through the market correction of the start of this year.

“The company operates 986 fast food restaurants across the country (and one in Toronto) that serve a focused menu of Tex-Mex dishes, mainly burritos, tacos and quesadillas, chips and salsa. Sales rose 14% in 2009, to $1.52 billion, thanks primarily to new store openings, with comparable store sales advancing 2.2%.

“The company focuses on producing what it calls “Food With Integrity,” that is, beef, chicken and pork from animals that are pastured, humanely treated and raised antibiotic-free on a vegetarian diet. With vegetables, the company aims for its offerings to be 100% organic. …

“Indications are that the “Food With Integrity” approach resonates with its customers-the company raised prices 8.5% late in 2009 and quickly worked through the accompanying dip in volume back toward prior levels. The price hike gave Chipotle its highest operating margins ever, at 26%, and net income for the full year 2009 zoomed up 62% to earnings per diluted share of $3.95. By its own calculations, Chipotle still believes its food is underpriced compared to other chains hawking Mexican fare by about 9%. Management stresses this value proposition for consumers, and won’t be raising prices in 2010.

“In addition to pulling in more customers through its existing doors, growth will continue to come from new store openings, with 120 to 130 planned for this year. About 25% of those openings will be a new store format already tested in some areas (including a location we visited) that will be smaller and more suited to long narrow spaces both at malls and urban street level locations, and thereby cheaper to open while offering the same menu. The company is also testing a kids’ menu (also at a location we visited) that, while still in early stages, is showing signs of generating an overall boost in average customer orders. In Dulles airport, the company is also in the early stages of testing breakfast offerings.”

As you can see, despite Chipotle’s early success, the company isn’t just resting on its laurels. It’s got big plans for the future and investors seem to like that. The stock is up a modest 14% since Brendan recommended it, a pretty decent gain in this volatile market, and I think it’s got farther to go.

In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.

Cabot Wealth Advisory 5/3/10 – Trend-Spotting in the Retail Sector

On Monday, we heard from Chloe Lutts, editor of Dick Davis Digest and Dick Davis Income Digest. This month, Chloe discussed the concept of peak perception, the boom in retail stocks and an investment for this trend. Featured stock: Joe’s Jeans (JOEZ).

Cabot Wealth Advisory 5/4/10 – These Ignored Stocks Beat the Market 2-to-1

On Tuesday, we heard from Nathan Slaughter, Chief Investment Strategist of Market Advisor at StreetAuthority. Nathan discussed why company spinoffs can be profitable investments.

Cabot Wealth Advisory 5/6/10 – SNaC for Well-Balanced Stock-Picking

On Thursday, Paul Goodwin discussed why technical analysis and fundamental analysis must be used together when picking stocks, as they are in his method: SNaC, for Story, Numbers and Chart. Paul also discussed wise words from Warren Buffett’s wife and an education stock. Featured stock: Bridgepoint Education (BPI).

Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory


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