One Thanksgiving tradition is where the family sits down around the dinner table, and each member takes time to reflect on the year that has just passed and what they are thankful for in that year. That’s a typical Thanksgiving tradition. My Thanksgiving traditions are a bit different. When we sit down around the dinner table and reflect on the year, we give thanks for the winning stocks that we bought at the beginning of the year.
I’m only kidding. Sort of.
But, in all seriousness, Thanksgiving is a great time for stock market reflection. A lot has happened this year. The yield curve inverted, with the long end of the curve hitting record lows. Then yields staged their biggest rally in several years. The Federal Reserve went from hiking rates, to cutting them. Global economic growth hit its slowest pace since the Great Recession, and yet, stocks are having their best year in two decades. Consumer confidence hit an all-time high. Manufacturing activity hit a ten-year low. Recession fears have ebbed and flowed, as has the U.S-China trade war.
As I said, a lot has happened.
Against this noisy backdrop, a few food stocks have shined bright. Thus, without further ado, let’s take a look at three food stocks to be thankful for this year, and see where these hot stocks could go next year.
Best Food Stocks of 2019: Chipotle Mexican Grill (CMG)
Year-to-Date Gain: 78%
One food stock investors should be especially thankful for this year is fast-casual Mexican eatery Chipotle Mexican Grill (NYSE:CMG).
CMG stock is up 78% year-to-date, broadly outpacing the S&P 500’s 23% gain, thanks to the company’s turnaround efforts gaining momentum. Specifically, new management at Chipotle has leveraged new menu innovations, digital business expansion, loyalty programs, relevant promotions and differentiated marketing to drive huge traffic and comparable-store sales growth. This big growth has driven equally big gains in CMG stock.
To be sure, the rally hit a rough patch recently. But, the recent selloff is due simply to valuation concerns. Chipotle is still firing on all cylinders, and the economic backdrop is only growing more favorable. CMG stock just got too overvalued for its own good. Shares retreated. Now, they are much more reasonably valued, and the company is still doing everything right to drive big growth.
The implication? CMG stock should stay in rally mode in 2020.
Year-to-Date Gain: 30%
Another food stock which investors should be especially thankful this year is coffee giant Starbucks (NASDAQ:SBUX).
For a few years in the mid-2010s, it looked like Starbucks was losing its groove. Independent coffee shops were stealing trend-oriented consumers as they began popping up everywhere, while big fast food chains like McDonald’s (NYSE:MCD) were stealing price-oriented consumers as they moved into the breakfast food and drink category. Starbucks’ traffic growth went negative, comparable-store sales growth fell flat and profits stopped ramping higher. So did SBUX stock, which was stuck in neutral in the middle part of this decade.
Then, Starbucks got its act together. It leveraged menu innovations and unique mobile pay programs to drive renewed traffic growth in developed markets, while doubling down on market expansion in China. Comparable sales growth trends picked up steam. So did profit growth trends and SBUX stock — which is up 30% in 2019.
Will the rally continue in 2020? I have my doubts. The competitive landscape here is only getting fiercer, and intensifying competition should ultimately dilute revenue growth rates going forward. At 24-times forward earnings, SBUX stock isn’t priced for growth to slow. If it does in 2020, shares may struggle for gains.
Shake Shack (SHAK)
Year-to-Date Gain: 32%
Last, but not least, on this list of food stocks to be thankful for is chicken and burger chain Shake Shack (NYSE:SHAK).
For most of the year, Shake Shack could do no wrong. The company was leveraging unique menu additions and steady real estate footprint expansion to drive gains in comparable sales and huge gains in revenues. Investors were bullish that this big growth would continue forever, and SHAK stock consequently found itself up 120% year-to-date at one point in time.
But, growth did slow in the third quarter of 2019. Margins came under pressure, too. SHAK stock plummeted. Although it’s still up 32% year-to-date, SHAK stock is also down over 40% off its 52-week highs.
What’s the next move for SHAK stock? Probably to stay lower for longer. Shack Shack is a cool concept. But, it has limited appeal, given its high price points and small serving size. You don’t get much bang for your buck, and because of that, this company will not be as widely successful as bigger food chains. The unit growth narrative will max out sooner than most expect. Comparable sales trends won’t be robust forever.
These are realities that still aren’t priced into SHAK stock at almost 100-times forward earnings. As such, caution is warranted.
As of this writing, Luke Lango was long MCD.