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Chipotle: Slow Food All the Way

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This article is part of our Real-Money Stock Picks series.

Last week, Chipotle Mexican Grill (NYSE: CMG  ) shares plunged after the company reported quarterly results. Right now, Chipotle may look like it's becoming a "slow food" stock in the fast-food realm, but there are several reasons why true long-term investors shouldn't sweat the short-term.

For whom the Bell tolls
Chipotle's quarter missed analysts' expectations, but the results were actually pretty robust considering America's overall economic situation hasn't been great lately. Double-digit percentage increases in sales and net income certainly don't make me think there's any reason to push the panic button.

Meanwhile, Chipotle's plan to test out its ShopHouse Southeast Asian concept in Los Angeles is a heartening sign for future growth avenues, too. 

Count me in the camp that thinks the David Einhorn-fueled idea floating around that Yum! Brands' (NYSE: YUM  ) Taco Bell is a threat to Chipotle is outlandish, even if Taco Bell is fancying up its offerings.

Chipotle's Food With Integrity mission is far removed from anything Taco Bell can utilize as an "add-on" to its menu. Chipotle's ahead of the curve in embracing food ethics, which more and more American consumers find appetizing. A company like Whole Foods Market (Nasdaq: WFM  ) couldn't have thrived like it has if more Americans hadn't started to understand the importance of what goes into their bodies and started rejecting the worst elements of factory farming and unsustainable agricultural practices.

Let's also remember that Chipotle has plenty of room to grow, here and overseas. There are 1,350 Chipotle restaurants. If you want to make a comparison, consider that former parent McDonald's (NYSE: MCD  ) has more than 33,000 restaurants worldwide. For what some would call closer to a burritos-to-burritos comparison, Yum! Brands boasts nearly 6,000 Taco Bell restaurants.

Slow down!
Granted, my play on the term "slow food" to speak about Chipotle isn't quite right. The real slow food movement emphasizes local, sustainably grown, artisanal, seasonal foods, and as USA Today once put it, "everything fast food is not."

However, Chipotle does speak to the movement, since it seeks to incorporate high-quality, organic, local ingredients whenever possible, a real game-changing idea in the fast-food realm.

Chipotle may be a "slow food stock" for a while; one of the things that alarmed investors was Chipotle's prediction of flat to single-digit comps next year. However, I'm wondering if 2013 is going to be rough on many, many companies, and it may test even the most stalwart long-term investors.

Let's be patient, though: One of the worst things about the marketplace in recent decades has been the pressure on corporate managements to deliver growth right now for Wall Street analysts and frenetic traders with the attention spans of sand fleas -- and this outlook has caused many a great company to lose its way. We Foolish investors can -- and should -- fight that tendency.

Profits through patience
I purchased shares of Chipotle twice for the real-money portfolio I'm managing for, and although both buys are in the red right now, Chipotle remains one of my favorite long-term choices. I've purchased shares for my personal portfolio, too. Obviously, I believe this is a disruptive, forward-looking company with excellent future growth possibilities.

I've also got my eye on Panera (Nasdaq: PNRA  ) , which reports its quarterly results tomorrow. Some temporary weakness in its stock price would make it a tempting addition to the portfolio, and Panera also has interesting social initiatives built into its mission. For example, take its budding Panera Cares community cafes, which feed customers regardless of their ability to pay.

Chipotle shareholders with a truly long-term view have no reason to panic. For those who have been craving the company's shares, consider times like this an opportunity to scarf up bargain-priced shares of a great business.

It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this brand new premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the key opportunities and threats facing the company. We're also providing a full year of regular analyst updates to go with it, so make sure to claim your copy today by clicking here.

Alyce Lomax owns shares of Whole Foods Market and Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, Panera Bread, and Whole Foods Market. Motley Fool newsletter services recommend Chipotle Mexican Grill, McDonald's, Panera Bread, Whole Foods Market, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 22, 2012, at 10:32 PM, matthewluke wrote:

    It isn't just Taco Bell. Part of Einhorn's argument is that there is low barriers to entry. Taco Bell was able to simply add higher-quality items menu to its existing stores. And other operators are able to add more store as they expand regionally.

    For Mexican chain-restaurants, I'm personally a big fan of the privately-held Rubio's Fresh Mexican Grill. It is a brand I don't believe has made it out to Washington/DC/Virginia area yet (at least not when I lived there). I think it is a west-coast only restaurant at the moment. There are other up and coming regional brands as well.

  • Report this Comment On October 23, 2012, at 11:02 AM, Borisbmx wrote:

    WSW i agree on low barriers, but scale fortifies the wide moat. Using MCD expertise, CMG probably has status as the low cost producer.

  • Report this Comment On October 23, 2012, at 12:13 PM, corpgov wrote:

    CMG is a great stock for the long-term. It would be even better if they took a few measures to improve their corporate governance... like annual elections for directors.

  • Report this Comment On October 25, 2012, at 12:17 PM, TMFLomax wrote:

    CMG also has the key differentiation of the type of ingredients in its supply chain, which really is a Big Idea in fast food. That's the part I don't think is easily replicated (nor do I think a lot of other QSRs would even be that interested, although, say, Panera gets it).

    Corpgov, thanks for bringing that up. That's an important change I would definitely like to see.


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10/26/2016 4:02 PM
CMG $368.02 Down -37.65 -9.28%
Chipotle Mexican G… CAPS Rating: ****
MCD $112.11 Down -0.61 -0.54%
McDonald's CAPS Rating: ***
PNRA $191.11 Down -3.45 -1.77%
Panera Bread CAPS Rating: ****
WFM $28.43 Down -0.16 -0.56%
Whole Foods Market CAPS Rating: ****
YUM $85.73 Down +0.00 +0.00%
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