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3 Stocks Peter Lynch Would Love

By Rick Munarriz – May 19, 2020 at 6:30AM

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A video star, fitness guru, and restaurant chain that hit an all-time this week are among the stocks that the famous mutual fund investor would probably be buying if he didn't retire 30 years ago.

Peter Lynch is a name that may be lost on some younger investors, but no one dominated the mutual fund game in the 1980s the way he did. His no-nonsense approach to identifying winners made the Fidelity Magellan fund he managed at the time the industry leader with market-trouncing returns.

He retired as an industry rock star, penning investing classics One Up on Wall Street and Beating the Street to cement his status as a stock-picking legend. Lynch was all about buying stocks that were easy to understand, and some of his best investing ideas came from just taking his wife and kids to the mall to get a pulse on what retail concepts were trending. 

Lynch would probably be killing the market again now. Big gainers Netflix (NFLX 0.13%), Peloton (PTON -0.24%), and Chipotle Mexican Grill (CMG 0.46%) would be the kind of stocks he'd be gobbling up these days. Let's take a closer look at the three consumer-facing winners. 

A male date shows up holding a gift box and rose behind his back as he approaches a woman enjoying wine at a table.

Image source: Getty Images.

Netflix

Lynch conceded in a 2015 Wall Street Journal interview that he missed on Netflix despite being a subscriber at the time, and here's hoping he finally came around to his senses. The shares have nearly quadrupled in that time. 

Netflix seems like the quintessential Lynch stock, leading the charge of an undeniably growing industry. It expects to have more than 190 million paying subscribers worldwide by the end of next month, and that's helping it make an 11-figure annual investment in content to pad its already massive digital catalog. It's the only reliable tastemaker when it comes to video entertainment. Rival services will have a hit show or movie every so often, but it's only Netflix that seems to have a pop culture juggernaut on its hands every few weeks. An unmatched audience to scale content and two decades of viewership data have it one step ahead of what consumers crave. 

Peloton

No one's going to a spinning class at a boutique gym anytime soon, and Peloton is the closest proxy to the live on-site experience with its instructor-fueled workouts complete with real-time leaderboards, member shout-outs, and other more practical performance metrics.

Peloton's on fire these days. There are now 886,100 Peloton bike or treadmill owners on its premium subscription platform, a 94% year-over-year surge. It expects its audience to widen even faster in the current quarter. Even now with a pause in treadmill sales until in-home deliveries can resume and a mounting backlog of stationary bike orders Peloton is scoring points in the new normal with its high-energy interactive workouts. Churn is at a four-year low, and that's definitely not the kind of thing that your local gym can be bragging about these days. 

Chipotle Mexican Grill

Lynch had some of his greatest successes by spotting emerging retail and hospitality trends, and I'm sure if Chipotle had been around in the 1980s (it was founded three years after Lynch retired) it would've been on his radar. He often says Taco Bell was his best stock pick at Magellan. 

Chipotle hits all of the right notes in an otherwise fickle restaurant universe. The chain made fast casual, "food with integrity," and assembly-line style quick service cool. Would avocado toast even be a millennial staple if Chipotle didn't make the savory fruit aspirational by charging extra for guacamole? 

Chipotle face-planted badly nearly five years ago, when it had a wave of food-borne-illness outbreaks tarnish its brand, but the chain is now back and stronger than ever. It has rattled off nine consecutive quarters of positive comps, and it's holding up better than most chains these days, with strong digital initiatives to keep sales brisk despite the shuttered dining rooms during the COVID-19 crisis. The stock cracked the $1,000 ceiling for the first time on Monday, and there's no looking back now. 

Rick Munarriz owns shares of Netflix and Peloton Interactive. The Motley Fool owns shares of and recommends Chipotle Mexican Grill, Netflix, and Peloton Interactive. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$224.36 (0.13%) $0.29
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,539.00 (0.46%) $7.01
Peloton Interactive, Inc. Stock Quote
Peloton Interactive, Inc.
PTON
$8.20 (-0.24%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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