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Published: February 4, 2010
So, you're probably asking, what is on my
Watch List? Right now, I'm focused on getting back to basics...
looking for strong stocks with great sales and earnings growth,
big profit margins and (very important!) a solid story that is
likely to continue those earnings trends in the quarters to
come.
Moreover, I'm attracted to stocks that have been building
launching pads for many weeks or months, as opposed to stocks
that have motored higher for 10 months.
On that front, I'll highlight two stocks I've been keen on for a
while, yet the stocks (and their group) just never got going
last year. But now, it looks like the tide may be turning.
I'm talking about restaurant stocks, but specifically, "new
idea" restaurant stocks that aren't already so big that they're
destined to grow a measly +5% a year. My two favorite ideas in
the group -- Chipotle Mexican Grill (NYSE: CMG) and
Buffalo Wild Wings (Nasdaq: BWLD) -- have tons of expansion
potential in the years ahead, which, combined with growth at
restaurants already open, should drive earnings sharply higher.
Chipotle Mexican Grill is aiming to re-invent the fast-food
business with its simple Mexican fare. Its hitch is fresh,
quality ingredients as well as quick service-most of the firm's
beef, chicken and pork is naturally raised (no hormones, etc.),
and much of its vegetables are organic. More important, the food
is good! Management is also top-notch (the firm was originally a
subsidiary of McDonalds before being spun off in 2006), and
should be able to guide the firm from its current 900-plus store
count to a couple of thousand in the years ahead. Revenue growth
has been humming along at a 15% clip, but earnings are expanding
much, much faster (up +49% and +83% the past two quarters).
Buffalo Wild Wings is aiming to be a national sports bar of
sorts, a novel idea. The firm makes a lot of its money on
alcohol, thanks to its fun, cozy atmosphere, yummy wings
(including a dozen different sauces) and crew that is told not
to force customers out the door. The firm currently has 652
stores in 42 states, but management believes 1,000 stores in the
U.S. is easily achievable, followed by expansion overseas.
Revenue growth is running in the 25%-plus range, with earnings a
little faster.
Both stocks have been building bases since the middle of last
year but have perked up in 2010 despite the soggy market. Also,
both are reporting earnings on February 11. Assuming both stocks
get through their earnings reports unscathed, my thought is that
they have strong upside in the months ahead as money flows into
the fastest-growing companies in this group.
-- Mike Cintolo
Editor
Cabot Top Ten Report |
