Amid the Brexit carnage, one unlikely company is weathering the storm quite nicely: battered burrito seller Chipotle Mexican Grill, Inc. (NYSE:CMG).
While the Dow Jones Industrial Average is down nearly 500 points and the S&P 500 nearly 3%, good ol’ CMG stock is down less than 1%.
What gives? And should we start wrapping our Chipotle burritos in Union-Jack-printed aluminum foil?
The Brexit and CMG Stock Aren’t Exactly Intertwined
Well, there is the obvious: Brits aren’t nearly as mad about enormous beer-can-sized burritos as we Americans are, and I’m not sure most continental Europeans even know what a burrito is. So political machinations half a world away really don’t matter much to Chipotle’s bottom line.
Furthermore, Chipotle is a debt-free company. So any distortion to the credit markets are something that CMG stock holders can blissfully ignore. Furthermore, as Chipotle’s sales are mostly in U.S. dollars, currency risk isn’t much of an issue.
But with all of that said, most of the companies in the S&P 500 have relatively limited exposure to Britain, and yet U.S. stocks had one of their top-100 worst openings in history. So there clearly has to be more to the story than that.
Here’s the scoop.
Chipotle Is Done Being a Punching Bag
There comes a point when a stock is so battered and beaten down that it stops reacting to bad macro news. Part of this is due to the investors that own it. Chipotle was yesterday’s high-momentum story stock. But the momentum investors that rode the stock for years have long since bailed out of CMG stock considering that it lost nearly half its value in the wake of the food safety scares.
The investors that would own Chipotle today would tend to be value investors and bottom fishers, who are a lot less likely to sell during a market rout. In fact, they’d be likely to buy more.
As a general rule, it’s a good sign when a stock stops reacting to bad macro news. So the fact that Chipotle is barely down on the day of what is arguably the biggest macro event in eight years, is a very big deal. If a stock can survive the Brexit intact, then any of the less-committed holders that might have sold have long since sold.
So, does that mean that CMG stock is essentially risk-free at this point?
For one, the rest of this day has to play out. If CMG flags significantly by the day’s end, then all bets are off — Chipotle still has more weakness to share with the world.
Also, Chipotle’s problems have all been of its own doing, and if we were to have yet another health scare, even patient value investors could start to lose their patience. I consider that a real risk, and I would definitely keep my eyes open for more sick diners.
But I also think that it is highly likely that CMG stock has seen its bottom at this point, or at least we’re very, very close.
Value investing is something of a waiting game, and there is no guarantee that the stock will mount a serious rally tomorrow. But if you’ve been sitting on the sidelines waiting for Chipotle stock to stop falling, this might well be the sign you’ve been waiting for.