It's been just over a year now since the market began to tank, ending a strong bull run that's been ongoing almost since the last crash in 2008. That doesn't mean there weren't dips along the way, but the current bear market is lasting longer than previous dips.
Investors know that just as bull markets do eventually come to an end, so do bear markets. There's no reason to panic about the current market conditions; it's part of the process. If anything, the downswing resets astronomical valuations and provides attractive entry points so investors have even more to gain.
Are you getting ready for a bull market? Chipotle Mexican Grill (CMG 6.33%) and Visa (V 0.05%) are two great places to start.
1. Chipotle: Mexican food for the masses
Chipotle has delivered outstanding results for investors over time, and the pandemic barely registered on its earnings. It didn't post a single quarter of sales declines, unlike other restaurant stocks, and although it has felt some margin pressure, it responded with price hikes without negatively affecting demand.
Revenue increased 17% over last year in the 2023 first quarter, with comparable sales up 11%. Operating margin increased from 9.4% last year to 15.5% this year, an impressive feat in the high-inflationary environment. Earnings per share (EPS) increased from $5.70 to $10.50, toppling Wall Street's average consensus estimate of $8.95.
Chipotle operates in the fast-casual segment, which is a good niche to be in right now. It appeals to an upscale customer base, which is generally more resilient to inflation, and also acts as a stand-in for high-end fare for a lower-income-level population.
The company runs 3,200 restaurants right now but sees the opportunity for 7,000, giving it a long growth runway. It's focusing on new markets, and in the U.S., it's entering smaller towns. It also just opened up its first store in Ontario to enter the Canadian market.
The price looks tempting right now. Investors were less enthused after the fourth-quarter report, and the price hadn't seen much movement before the Q1 report this week. Although impressed investors scooped up Chipotle shares after the excellent report, its valuation is still far off its five-year average.
CMG PE Ratio data by YCharts
A price-to-earnings ratio of 54 isn't cheap, but Chipotle gets a premium valuation for its resilience and opportunities. Don't expect the valuation to get much more affordable.
2. Visa: Industry dominance and wide margins
Visa is another standout company that delivers time and time again for investors. It's the largest payment processing company in the world, with more than 4.1 billion cards and more than $14.1 trillion in total payment volume over the past 12 months.
Visa has a strong moat in its dominant brand and abundant partnerships, and it operates in an industry that grows in any strong economy. It's not a surprise that Visa is a Warren Buffett stock.
Despite the current volatility, it has also demonstrated resilience and growth. It posted another excellent report for the 2023 second fiscal quarter (ended March 31), with an 11% year-over-year increase in revenue and a 20% increase in EPS. It specifically benefited from a travel return, with a 32% year-over-year increase in cross-border payments.
Notably, Visa has incredibly high profit margins. Even during the 2020 crash, when revenue was declining, it maintained a profit margin of 48%.
V Profit Margin data by YCharts
These high margins, combined with the substantial opportunities to expand revenue and income, lead to a high valuation for Visa. And like Chipotle, the valuation is a premium one. Visa stock trades at a price-to-earnings ratio of 30, but it's still below the 5-year average of 36.
These stocks are two excellent long-term picks that are trading at attractive valuations and offer robust opportunities for growth.
