Don’t Throw Out Chipotle Stock on Supply Chain Fears

Don't let tariff tensions with Mexico chill your enthusiasm

Chipotle (NYSE:CMG) has been on a comeback from its quality control issues. CMG stock is up 52% in the past year, and 60% year-to-date.

Chipotle Stock cmg stock
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But CMG has had a volatile month, largely due to President Trump’s new tariff target: Mexico.

It’s largely assumed that slapping an immediate 5% tariff on all goods coming from the U.S.’s No. 3 trading partner (just about $80 billion less in goods than No. 1 partner China last year), and increasing up to 25% by October, would hurt the U.S. as much as it would Mexico.

And the industries that would take the brunt of this would be companies that are in the auto sector, food/agriculture/dining sectors, manufacturing and textiles, as well as the transport sector.

Since CMG even has Mexico in its name, it would be an obvious company that would be in the crosshairs. And that is what stirred concern with investors.

However, Chief Financial Officer Jack Hartung said he wasn’t too concerned about the potential tariffs. He said CMG exposure to Mexican agriculture products was only about $15 million this year and slightly more in 2020.

Given the fact that annual revenue for CMG was around $4.8 billion last year, this doesn’t really move the needle.

At this point, the likelihood future tariffs on Mexican goods is unclear. Trump called them off last week, only to threaten them again this morning.

However, we’re a long way away from that right now.

The Growth Narrative for CMG Stock Remains Intact

What we did see in CMG’s Q1 numbers was digital sales double compared to the same quarter last year and online sales now account for 16% of total sales. This is a win-win for both customers and the stores.

The stores can better prepare orders for pick-up so that consumers get their food fast and hot. There’s less of a boom and bust cycle to serving customers — i.e., the lunch and dinner rushes can be better spread out so in-store diners have a better experience as well as to-go customers.

Its operations are certainly improving and this has begun to turn doubters into believers. It’s still pretty pricey, with a P/E in the low 90s. But if it can keep its current momentum and with nearly 6% of the stock in short positions right now, any good news is going to send the stock much higher as the short positions will dump their holdings as the stock rises, creating a short squeeze.

The point is, CMG stock looks very attractive from both a short and long-term perspective. This is why my Portfolio Grader has put an A rating on it.

Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth InvestorBreakthrough StocksAccelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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