With the coronavirus driving wild swings in the stock market over the past few months, investors can easily get confused about how to find a great company. But buying near a low won't make you rich unless you can be reasonably confident that the company will thrive and the price will rise.
Target (TGT -0.72%), Chipotle Mexican Grill (CMG 0.19%), and Square (SQ -2.58%) are three companies that have proved themselves over time and through the pandemic. Their share prices might not be low, but investors can still expect them to rise.
Target: giving customers what they need
Target's sales soared during the first quarter, straight through the pandemic. The cheap and chic retail king has made a big turnaround after sales declined in fiscal 2016, thanks to a renewed focus on omnichannel shopping formats and store-owned brands, and it was prepared for the huge shift in retail behaviors that is marking the COVID-19 era.
Image source: Target.
Comparable sales increased 10.8% in Target's fiscal first quarter, which ended on May 2. Digital comps rose 33% in February and accelerated to grow 282% in April.
What's really exciting about Target's digital success is that it has been able to turn its stores into distribution centers to fulfill digital orders and stay profitable. Other companies -- even Walmart -- have been having a hard time figuring out the right formula to keep shipping and handling costs down and make a profit while offering more competitive options for customers.
Target has a moderate trailing-12-month (TTM) price-to-earnings (P/E) ratio of 23, and its share price is down 1.8% year to date after climbing 94% in 2019. This real-deal stock should keep rising as the company keeps giving customers what they want.
Chipotle: the new fast casual
Chipotle Mexican Grill saw its growth come to a halt during the pandemic, as restaurant seating areas were closed down and patrons stayed at home. But the restaurant chain quickly pivoted and kept sales declines to a minimum through the introduction of Chipotlanes and a focus on digital ordering. This resulted in 216% digital growth last quarter.
Image source: Chipotle Mexican Grill.
Its fresh and sustainable formula has racked up loyal fans for years as the company has expanded, which gave it somewhat of a cushion in the first quarter. Prepandemic growth rates were high.
| Metric | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 |
|---|---|---|---|---|
| Revenue growth | (4.8)% | 8% | 18% | 15% |
| Digital growth | 216% | 80% | 78% | 88% |
| Digital as a % of sales | 61% | 26% | 20% | 18% |
Data source: Chipotle Mexican Grill quarterly reports. Table by author.
Chipotle is already on the mend from the disruption of COVID-19, and the company sees great growth potential within the U.S.
Chipotle is the story of a great company that has its finger on the pulse of where trends are moving, and it's able to adapt its model to fill in the gaps. The stock's price tag of over $1,000 might seem hefty, but it's already up more than 30% year to date, and with its strategy and leadership, it can go even higher and provide long-term gains.
Square: solutions for the digital age
The fintech, or financial technology, sector has been gaining in importance over the last few years, but has been thrust into further prominence with COVID-19. Square is at the center of fintech innovation, beginning with its little white card reader and moving out into its newish Cash App.
While many tech companies have had their prices inflated on speculation that they would be the next big thing, Square has shown that it's much more than hype. It has created a seller ecosystem where clients can take care of all their financial needs in one place, and it has now developed a similar ecosystem with its Cash App for customers to "send, spend, and save" all in one app.
This led to 44% year-over-year revenue growth in the first quarter of 2020. Online gross payment volume (GPV) increased more than five times from February through April, after Square mobilized to help storefront sellers get online and introduced curbside pickup and local delivery. It also had a record number of net new active Cash App users in the quarter.
Square has a massive TTM P/E ratio of 194, but its share price has already increased more than 100% year to date. The company has tremendous growth potential with its current products and services, and its culture of innovation keeps bringing out new solutions for small businesses and individuals. This real-deal stock can still deliver high returns for shareholders.
