So, after Friday’s post 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 (CMG) and Buffalo Wild Wings (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’ (BWLD) 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.
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