Shopping List for a Market Pullback: Disney, Starbucks, and Chipotle Mexican Grill

Disney, Starbucks, and Chipotle Mexican Grill are three high-quality candidates for investors looking to capitalize on a market pullback to make opportunistic purchases.

Andrés Cardenal
Andrés Cardenal
Apr 14, 2014 at 1:00PM
Consumer Goods

The stock market has been particularly weak lately, and many investors are getting concerned about the possibility of a continued pullback in prices over the coming days. If that happens, high-quality companies such as Disney (NYSE:DIS), Starbucks (NASDAQ:SBUX), and Chipotle Mexican Grill (NYSE:CMG) could be great candidates for investors looking to buy growing businesses at discounted valuation levels.

The fun is barely getting started with Disney
Disney is a unique company in the entertainment industry thanks to the enormous value of its brands and intellectual properties. Not only that, but Disney gets to benefit from its creations via multiple platforms: movies, shows, parks, merchandising, etc.

Source: Disney.

A successful movie can set the stage for Broadway shows, park attractions, merchandising, and all kinds of profitable businesses. Keeping this in mind, the explosive success Disney is achieving with Frozen bodes remarkably well for the company when it comes to growth opportunities in the years ahead.

Disney is truly firing on all cylinders from a financial point of view. Sales during the fourth quarter of 2013 grew by 9%, to $12.31 billion, while adjusted earnings per share jumped by an impressive 32% versus the prior year on the back of growing profit margins. All of the company's five business segments delivered double-digit growth in operating income and higher margins compared to the fourth quarter of 2012.

This intergenerational company has built a long-lasting emotional connection with consumers of different ages, and it continues to delivery widely successful content and to plant the seeds of growth over years to come.

When market volatility provides the chance to buy an extraordinary company like Disney at a discounted valuation, smart investors should be ready to capitalize on the opportunity.

Starbucks offers steaming-hot growth opportunities
Starbucks is about much more than coffee. The company owns one of the most valuable brands in the consumer business. Its reputation for quality and differentiated customer experience allows Starbucks to charge premium prices for its products and deliver superior profitability for investors due to higher profit margins.

Source: Starbucks.

Starbucks is expanding its product offerings via acquisitions and innovation, broadening its presence in areas such as tea, juice, and food offerings. This smart strategy should generate not only growing sales but also expanding profit margins by leveraging fixed costs into a bigger product portfolio over time.

The company has been experimenting with selling wine and beer in select locations over the last several years, and management has recently announced the decision to bring alcohol into thousands of stores over the coming months. This is a risky move, since it could negatively affect the environment at the stores, but it could also be a huge profitability booster if Starbucks manages to successfully expand into a high-margin business like alcoholic drinks.

The company delivered a big increase of 25% in earnings per share for the quarter ended in December 2013, and global same-store sales increased by a robust 5% during the period, so Starbucks still has considerable room for store base growth as new openings are not cannibalizing performance at previously existing locations. 

Chipotle Mexican Grill is as spicy as it gets
Chipotle Mexican Grill is unquestioningly one of the most spectacular growth stories in the restaurant business over the last several years. The company has increased sales at an explosive 19.3% per year over the last five years, and there is no slowdown in sight judging by recent earnings reports.

Source: Chipotle Mexican Grill.

Sales in the fourth quarter of 2013 grew 20.7% to $844.1 million, as comparable restaurant sales increased by an impressive 9.3% during the period and Chipotle opened 56 new restaurants, bringing the total store count to 1,595 locations.

Consumers can't seem to get enough of Chipotle's burritos, and opportunities for growth are still abundant. Management is planning to continue focusing its efforts in the U.S. over the coming years, and international markets are still practically untapped, as Chipotle has only 16 stores in global locations.

If Chipotle Mexican Grill replicates in international markets the same level of success it has achieved in the U.S., then the company should reward investors with mouthwatering returns over years to come.

Bottom line
Nobody can forecast with certainty what the stock market will do in the short term. However, the good news is you don't need to predict the markets in order to achieve successful returns over time: Buying high-quality companies on market dips can be a simple but effective strategy in the long term, and companies such as
Disney, Starbucks, and Chipotle Mexican Grill are great candidates for your shopping list in case of a market pullback.