Chipotle Mexican Grill - Best Retail Restaurant Pick

Summary

• Wall Street analysts predict positive growth in both Revenue and Earnings.
• The stock has positive investor sentiment.
• Exhibits high price momentum over various time frames.
• The stock has a very large following by both institutional and indvidual investors.

I've been investing for almost 50 years, and today an individual investor with a $500 laptop and an internet connection has access to more free investing data than the largest institutional investors had in 1970.  I've found that the only way an individual investor has any chance of beating the market and professional investors is to learn to be proficient in the use of tried-and-true databases and screeners. The two that have become my favorites are Barchart for its numerous technical and momentum indicators and Value Line for its complete fundamental analysis. In my series of articles in the coming year, I will teach you how to find stocks with momentum, high growth and increasing revenue and earnings. We will use a disciplined approach to educate ourselves about the stock to see if it is an appropriate addition to our portfolio.

When I'm looking for a stock with great momentum and technical indicators, I use Barchart's powerful screening tools to make a list of the stocks with the highest weighted alpha and technical buy signals. I set my screening criteria for:

• Stocks with a market cap over $100 million
• Weighted alpha over 50+
• Technical buy signals of 95% or better

The screening resulted in 322 stocks, which I then sorted by the most frequent number of new highs in the last month and used the Flipchart feature to review the charts for consistent price appreciation. The first chart was the retail restaurant company

Chipotle Mexican Grill (CMG), and its chart looked like this:

The first test I use is to compare CMG's performance over the last 6 months to see if it is beating the market. My market benchmark is the Value Line Arithmetic Index of 1700 stocks because it is not a cap-weighted index where larger stocks are more heavily weighted, but is a non-weighted index where all 1700 stocks are given equal weight so the index is not skewed.

As you can see, CMG is up 70.43% over the last 6 months while my benchmark of the Value Line Arithmetic Index is up only 8.87%.  Clearly it has out performed the market.

I next research the stock's fundamentals to see if that momentum is warranted:

• Market Cap $36.65 billion
• P/E 128.10
• Revenue expected to grow 6.90% this year and an additional 16.00% next year
• Earnings are estimated to decrease this year by 23.60% but increase next year by 94.40% and continue to compound upward at an annual rate of 22.18% for at least the next 5 years
• Financial strength A+

The overall sentiment of the investing community is very important, but I want to emphasize that you should never buy a stock just because it is popular but realize that it cannot maintain its upward momentum if some of the major players are beginning to bail out.  Sentiment is just a second opinion.

• Wall Street analysts issued 3 strong buy, 4 buy, 23 hold, 4 under perform and 1 sell recommendation on the stock
• Institutional investors own 93.04% of the outstanding stock
• Insiders own only 1% of the shares and over the last year have had net sales of 804,138 shares
• Short-sellers have 4.02% of the shares shorted and in the last month have lowered their shorts by 8.26%.
• Navellier Portfolio Grader rates the stock a B-Buy
• TipRanks has an 8 out of 10 Outperform rating
• The individual investors following the stock on Motley Fool voted 3,505 to 466 that the stock will outperform the market
• Value Line gives it a 3 Average for price appreciation over the next year but a 2 Above Average for technical momentum over the next 6 months
• Yahoo Finance gives it an over valued rating and predicts an annual rate of return of 14% over the next 5 years
• 110,730 investors are monitoring the stock on Seeking Alpha

I use Barchart for my technical momentum data over the last 6 months:

• Weighted Alpha 69.63+
• 100% technical buy signals
• Trend Spotter buy signal
• Above its 20, 50 and 100 day moving averages
• Relative Strength Index 77.01%
• Technical support level at 1,301.74
• Recently traded at 1,348.52 with a 50 day moving average of 1,158.56

I like to compare my selected stock to other stocks in the same sector, in this case the retail restaurant sector and see that in the last 6 months, Chipotle has increased 70.43% while

McDonalds (MCD) is up 5.42%, Yum Brands (YUM) up 3.59% and Restaurant Brands International (QSR) is down 8.87%..

Additional Comparisons:

McDonalds (MCD)

• Market Cap $158.55 billion
• P/E 34.61
• Dividend yield 2.34%
• Revenue expected to decline 9.60% this year and grow again by 13.70% next year
• Earnings estimated decrease by 25.90% this year, increase again by 39.60% next year and continue to compound at an annual rate of 3.88% for the next 5 years
• Wall Street analysts issue 8 strong buy, 15 buy and 10 hold recommendation on the stock
• Financial strength A++
• Value Line rating of 3 Average 
• Yahoo Finance rates the stock as over valued and expected a total annual return of negative 17% over the next 5 years

Yum Brands (YUM)

• Market Cap $28.89 billion
• P/E 29.89
• Dividend yield 1.96%
• Revenue expected to decline .40% this year but grow again by 10.80% next year
• Earnings estimated to decrease 9.60% this year but increase again by 21.20% next year and continue to compound at an annual rate of 6.63% for the next 5 years
• Wall Street analysts issued 5 strong buy, 7 buy and 13 hold recommendations on the stock
• Financial strength B+
• Value Line ranks the stock 3 Average
• Yahoo Finance thinks the stock is over valued and expects it to have an annual total return of negative 8% over the next 5 years

Restautant Brands International (QSR)

• Market Cap $16.41 billion
• P/E 24.30
• Dividend yield 3.84%
• Revenue expected to grow 9.60% this year and an additional 5.00% next year
• Earnings estimated to increase 28.60% this year, another 10.40% next year and continue to compound at an annual rate of 19.13% over the next 5 years
• Wall Street analysts issued 2 strong buy, 5 buy and 5 hold recommendations on the stock
• Financial strength B+
• Value Line ranks the stock 3 Average
• Yahoo Finance feels the stock is over valued and may have a negative annual total return of negative 21% over the next 5 years

Summary

Chipotle has met all my screening criteria and appears to be a good choice to add to my Momentum Portfolio. It has positive momentum over various time frames and has beaten both the market and most of its peers over the last 6 months. Although all 4 stocks have positive buy signals by analysts, CMG has the highest P/E ratio and is rated over valued by Yahoo Finance but they predict a positive total return over the next 5 years. Wall Street seems to agree with me.  If you own it keep it and if you add it to your portfolio, I recommend a moving stop loss at its 100-day moving average presently at 1,052.32 and revisiting that stop loss at least every Friday.