Why Herbalife, Chipotle Mexican Grill, and FuelCell Energy Are Today's 3 Best Stocks

Strong earnings data trumps mixed economic data and pushes the S&P 500, along with Herbalife, Chipotle Mexican Grill, and FuelCell Energy, notably higher.

Jul 22, 2014 at 5:15PM

It's been almost three weeks, but go ahead and chalk up yet another intraday record for the broad-based S&P 500 (SNPINDEX:^GSPC) which marched ever closer to the psychological 2,000 barrier after mixed economic data and a flurry of strong earnings results.


On the economic front, housing data gave the market its greatest push higher, with existing home sales for June coming it at a seasonally adjusted annual rate of 5.04 million, up from 4.91 million in May. Estimates had been calling for a figure closer to a seasonally adjusted annual rate of 5 million. For investors, this signals that homebuyers' appetite for home purchases may be growing again, which is good news considering that lending rates are again nearing their lowest point in a year.

On the flipside, today's Consumer Price Index release for June can be taken two ways. First, its 0.3% month-over-month increase dropped from the 0.4% increase in May and would signal that the rate of price increases for a basket of similar goods is slowing – and that's good news for the consumer. Conversely, that's two straight months of some pretty substantial price increases to consumers meaning inflation could be creeping back into the picture. Some inflation is a good thing for businesses as it demonstrates pricing power and steady or growing demand for their products and services. However, too much inflation and we could start to see consumer demand deteriorate which would be bad news.

The real growth driver, though, was a number of key earnings reports. For the most part, companies are handily trumping Wall Street's profit expectations and showing investors that Q1 was a weather-induced fluke.

By day's end, the S&P 500 had jumped by 9.90 points (0.50%) to close at 1,983.53, just a few points below its all-time closing high.

Leading all companies to the upside today was embattled nutrition, weight-management, and personal-care products company Herbalife (NYSE:HLF), which rocketed to the upside by 25.5% after Pershing Square's Bill Ackman presented his case against the company.

Source: Herbalife.

According to Ackman's presentation before the market open, he claims that the Federal Trade Commission is investigating Herbalife in anticipation of a possible formal probe. In addition, Ackman's research has concluded that Herbalife has fictitious customers and has inflated its potential business opportunities. In response, Herbalife defended itself by releasing documents this morning that supported its network business model as legitimate.

Today's action, which has long pitted Bill Ackman on the short side against activist investor Carl Icahn on the long side, is merely the culmination of Ackman's promise to the world with his presentation and underdelivering on that promise. Although there may be no inherent problems with Herbalife, investors' best course of action is probably to keep their distance, given just how cloudy its near-term outlook is. Rumors and speculation, both good and bad, could affect its bottom line, and frankly I'd prefer to stick to the sidelines just in case any of these accusations are proved accurate.

Investors also have to be wondering who spiked the burrito with habanero sauce after Chipotle Mexican Grill (NYSE:CMG) shares soared 11.8% following its second-quarter earnings results.


To say that Chipotle Mexican Grill topped expectations in the second quarter wouldn't be doing it justice. Total sales rose nearly 29% to $1.05 billion as comparable-store sales flew 17.3% and EPS jumped to $3.50, a 24% increase from the previous year. Comparatively, Wall Street was expecting only $990 million in sales, a 10.6% increase in same store comps, and just $3.09 in EPS. The impetus was consumers' willingness to accept the first price increases Chipotle has implemented in three years. Facing higher beef, dairy, and avocado pricing, Chipotle had little choice but to raise its prices in the face of weakening margins, and it appears to have paid off.

Despite Chipotle Mexican Grill's obvious outperformance and steady niche as a provider of natural and organic foods, I still can't wrap my hands around the company's forward P/E of 40. In other words, I would suggest investors consider locking in at least some of their gains here until Chipotle's bottom line somewhat catches up with its frothy valuation.

Fuelcell Energy

Source: FuelCell Energy.

Lastly, FuelCell Energy (NASDAQ:FCEL), a fuel-cell system developer for power plants, also romped 11.8% higher after announcing that its affiliate FuelCell Energy Solutions had received a 4.9 million euro ($6.7 million) research award in Germany to support a research project in collaboration with joint-venture partner Fraunhofer IKTS. Specifically, the project is designed to enhance Direct FuelCell technology and extend the life of fuel cells in order to lower long-term costs for this energy source.

While this is certainly welcome news for existing shareholders in FuelCell Energy and it points to the growing need for alternative forms of fuel, as my Foolish alternative energy colleague Travis Hoium pointed out earlier it doesn't materially alter FuelCell Energy's outlook. For the time being the company is still seeing somewhat inconsistent orders and it could be a few more years before it makes the full transition to profitability. Until such time as that occurs, I would recommend sticking to the sidelines.

If you're interested in the next earnings-driven story, look no further than Apple's next smart device (warning -- it may shock you)!
recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Chipotle Mexican Grill and Apple, and has options on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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