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How Tasty Was Last Quarter for Chipotle and Domino's?

In this segment of the Motley Fool Money podcast, host Chris Hill is joined by senior Fool analysts Jason Moser, David Kretzmann, and Jeff Fischer to talk Chipotle(NYSE:CMG), which fed shareholders a major win. But was it the quarterly report that moved the stock, the outlook, or confidence in the changes being made by the new man in the CEO’s chair? What should you be looking forward to from the fast-casual chain, and is its stock a buy now?

Also heading for a CEO switch is Domino’s(NYSE:DPZ), but what that company has achieved under outgoing boss Patrick Doyle has been nothing short of remarkable. The Fools talk tech innovations, menu improvements, and wedding catering as they consider this steadily rising stock.

A full transcript follows the video.

This video was recorded on April 27, 2018.

Chris Hill: Chipotle shareholders had their best week in years after first quarter results sent shares of Chipotle nearly 30% higher. And Domino’s Pizza shares were up this week after first quarter same-store sales rose more than 8%. David Kretzmann, let’s start with Chipotle. This was a good quarter. I don’t know if it was 28% good.

Jason Moser: Listen, the market has spoken, Chris.

David Kretzmann: [laughs] Don’t doubt the market!

Hill: You tell me, how good was this quarter for Chipotle?

Kretzmann: This quarter itself was, eh, it was OK. Comps were up about 2%, revenue up 7%. So, nothing lighting the world on fire. They are seeing improvement in restaurant-level operating margins, which are now at about 19.5%. Still below where they were several years ago before that E. coli crisis but moving in the right direction.

But I think this is 95% about Brian Niccol, the new CEO at the helm of Chipotle. And I think he’s really saying, and hopefully doing, everything that Chipotle should have been doing over the past several years through this crisis. Focused on digital innovation, revamping the menu and restaurants, I think, in the coming months, just, doing a lot of tests there. They’ve rolled out a new national marketing campaign already without that condescending tone that we kind of got accustomed to with Chipotle. Really just trying to remind people why they like Chipotle — quality, fresh ingredients. Hopefully, we’ll have some new menu innovations coming down the pike, as well.

Moser: Yeah. I think the big question going into this was what kind of a role Steve Ells was going to still play within the business. I mean, he wasn’t on the call. His name was mentioned once on the call as just a quick thanks. So, I think, generally speaking, Wall Street is very enthusiastic that this is clearly Niccol’s show here going forward, and it sounds like he’s up to the task.

Jeff Fischer: And he has a big opportunity, because so much traffic still has not come back. And yet, that’s kind of reluctantly so. People want to come back. They want a reason to go back. So, I think he has that laid out in front of him.

Kretzmann: And digital especially, you’re seeing some nice progress there. Digital sales were up 20% this quarter, but they still make up less than 9% of total revenue. During his time at Taco Bell, he did a lot as far as digital innovation, menu innovation, and marketing as well. So, bringing some of that over to Chipotle, I think, will bode well. In the meantime, free cash flow this quarter grew 50%. The company is now sitting on over $500 million in cash with no debt. So, they have some flexibility to do some tests here.

Hill: Also, Niccol on the call didn’t close the door completely on the idea of breakfast. If you listen to what he said, he basically said, “We’re not doing that right now.” But, it seems like that option is open to them somewhere down the line.

Kretzmann: Yeah, I’m sure we’ll see tests with breakfast, different menu ingredients, hopefully improved queso. So, a lot to look forward to, I think, as Chipotle shareholders and customers.

Moser: I’m going to go taunt them with my breakfast burritos and tell them they can’t make them better than I can, and maybe that’ll force their hand.

Fischer: Would any of you buy the stock today if you didn’t own it?

Kretzmann: I personally would. It still looks expensive based on trailing metrics, trading for about 40X free cash flow. But, I like the direction that Niccol is taking the company. It’s the direction I thought Steve Ells would have taken the company a couple of years ago after the crisis. But, if they can get margins back up, which I think they can, due to the marketing efforts they’re doing, digital initiatives, I think they can get closer to the glory days.

Hill: I sold this stock within the last six months or so, so I have missed out on the recent gains.

Moser: He was angry, too. [laughs]

Hill: [laughs] Well, I was angry for a lot of reasons. But, no, I think David speaks to my slight hesitation about jumping back in. It still seems like an expensive stock. But, eh, I might throw a couple of shares there.

Can we just say a quick word about Domino’s Pizza and the job that Patrick Doyle has done as CEO? Because this was his last quarter as CEO of Domino’s Pizza. David, you had posted on Twitter a chart of how Domino’s Pizza shares have performed under Doyle, and it’s basically up and to the right. It’s one of the all-time great turnaround jobs I think we’ve ever seen, certainly in the restaurant industry.

Fischer: Is there a business hall of fame museum somewhere? Because if there is, he should be in there. There should be a hall of fame for great leaders who have really changed their companies, or the world. Outstanding performance. Shareholders have, I think, been rewarded more than anyone could have imagined. And I love the lesson here that goes to say that something as simple as pizza or coffee or, I don’t know, name something else simple, can make a regular investor like you and me a mountain of money if you just buy the stock and keep it.

Kretzmann: Yeah. And the company has been so innovative with technology and doing all sorts of different tests. Something that they’re rolling out this quarter is Hotspots. Now, you can have pizza delivered to 200,000 parks, beaches, sports fields, and other untraditional places that don’t have a typical address. So, just amping up the level of convenience, especially with that digital platform. And, they have a wedding registry, which is something that I’ve learned, as well.

Hill: Really? [laughs]

Moser: And they also have pizza insurance, too! Like, if you put your pizza on top of your car and drive off and forget it, you can go back and get it replaced for nothing!

Hill: You know what? If you put your pizza on top of your car and you drive off, I’m sorry —

Moser: Well, you should have had it delivered in the first place, right?

Kretzmann: There you go.

Hill: Really quick, since Jason and Jeff and I have already gone through the wedding process with our respective brides, David, as the only single person at the table, is that something you’re going to explore? Is it an option, somewhere down the line, if you decide to get married?

Kretzmann: It’s a deal breaker or a dealmaker, either way.

The 10 Best Stocks to Invest In Right Now

It’s a different market than it was at the end of January. Volatility has returned, even if it remains modest relative to historical levels. Big names like Procter & Gamble Co (NYSE:PG) and Walmart Inc (NYSE:WMT), among others, have seen precipitous share price declines after record highs.

It’s a choppier, more cautious, environment. That’s not a bad thing, however. After a basically uninterrupted post-election rally, several stocks have seen pullbacks that provide more attractive entry points. Others simply haven’t received their due credit from the market.

While there might be reasons for caution overall — higher interest rates, trade war concerns — more opportunities exist as well.

This more and more looks like a “stockpicker’s market.” For those stockpickers, here are 10 stocks to buy that look particularly attractive at the moment.

Editor’s Note: This story originally ran on March 15, 2018

10 Best Stocks to Invest In Right Now: Exxon Mobil xom stock Source: Shutterstock

I’m as surprised as anyone that Exxon Mobil Corporation (NYSE:XOM) makes this list. I’ve long been skeptical toward XOM. The internal hedge between upstream and downstream operations makes Exxon stock a surprisingly poor play on higher oil prices. Overall, it leads XOM to stay relatively rangebound — as it has been for basically a decade now.

But price matters. And XOM is at its lowest levels in more than two years after a steady decline since late January. With the dividend over 4% and a 16x forward P/E multiple, Exxon Mobil stock looks like a value play. Meanwhile, management is forecasting that earnings can double by 2025, adding a modest growth component to the story.

Obviously, there’s a risk that Exxon management is being too optimistic. Years of underperformance relative to peers like Chevron Corporation (NYSE:CVX) and even BP plc (ADR) (NYSE:BP) has eroded the market’s confidence. If Tesla Inc (NASDAQ:TSLA) can lead a true electric car revolution, that, too, could impact demand and pricing going forward.

At current levels, however, the market is pricing in close to zero chance of Exxon hitting its targets. And that’s why XOM is attractive right now. A continuation of the status quo still gives investors 4%+ income annually. Any improvements in production, or pricing, provide upside. At a two-year low, Exxon doesn’t have to be perfect to see upside in XOM stock.

10 Best Stocks to Invest In Right Now: Nathan’s Famous Nathan's Hot Dog Eating Contest 2017 Source: Flickr

In this market, recommending a restaurant owner — let alone a hot dog restaurant owner — might seem silly at best. But there’s a strong bull case for Nathan’s Famous, Inc. (NASDAQ:NATH) at the moment.

NATH, too, has seen a sharp pullback of late. The stock touched a 52-week (and all-time) high just over $100 in November. It’s since come down about 25%, though roughly one-sixth of the decline can be attributed to a $5 per share special dividend paid in December.

Yet the story hasn’t really changed all that much. Fiscal Q3 earnings in February were solid. The company’s agreement with John Morrell, who manufactures Nathan’s product for retail sale and Sam’s Club operations, offers huge margins, while revenue continues to grow. Foodservice sales similarly are increasing.

The restaurant business has been choppier. But it remains profitable. The mostly-franchised model there is similar to those of Domino’s Pizza, Inc. (NYSE:DPZ) and Yum! Brands, Inc. (NYSE:YUM), among others, all of whom are getting well above-market multiples.

All told, Nathan’s has an attractive licensing model, which leverages revenue growth across the operating businesses. And yet, at 13x EV/EBITDA, and 20x P/FCF, the stock trades at a significant discount to peers. NATH has stabilized over the past few weeks, and Q4 earnings in June could be a catalyst for upside. Investors would do well to buy NATH ahead of that report.

10 Best Stocks to Invest In Right Now: Bank of America 3 Reasons BAC Stock Has More Upside Source: Shutterstock

Bank of America Corp (NYSE:BAC) trades at its highest levels since the financial crisis, and has gained over 150% from July 2016 lows. Trading has been a bit choppier of late — no surprise for a macro-sensitive stock in this market — and there’s a case, perhaps, to wait for a better entry point.

But I’ve liked BAC stock for some time now, and as I wrote last month I don’t see any reason to back off yet. Earnings growth should be solid for the foreseeable future, given rising Fed rates and a strong economy.

BofA itself has executed nicely over the past few years. The company’s credit profile is solid and its stock has outperformed other big banks like Citigroup Inc (NYSE:C) and even JPMorgan Chase & Co. (NYSE:JPM). And tax reform and easing capital restrictions mean a big dividend hike could be on the way as well.

And despite the big run, it’s not as if BAC is expensive. The stock still trades at less than 11x 2019 EPS estimates. Unless the economy turns south quickly, that seems too cheap. So it looks like the big run in Bank of America stock isn’t over yet.

10 Best Stocks to Invest In Right Now: Nutrisystem Source: Nutrisystem

Nutrisystem Inc. (NASDAQ:NTRI) is another candidate to buy on a pullback. In a disappointing Q4 earnings release at the end of February, Nutrisystem disclosed a rough start to 2018. The beginning of the year is known as “diet season”, a key period for companies like Nutrisystem and  Weight Watchers International, Inc. (NYSE:WTW), as many customers look to act on New Year’s Resolutions.

But marketing missteps led to poor results from Nutrisystem. 2018 guidance now implies basically zero revenue growth — after analysts had projected a 13% increase for the full year.

Still, Nutrisystem is now priced almost as if growth is coming to an end for good. And I as argued at the time, that’s just too pessimistic. The average Street target price still is well above $40, implying over 30% upside. NTRI now trades at under 14x the midpoint of 2018 EPS guidance, and yields 3.5%.

The valuation implies that Nutrisystem management is wrong — that 2018’s deceleration is a permanent change. If Nutrisystem management is right — and they’ve earned some credibility in leading revenue and profit to soar over the past few years — then $29 is a far too cheap price for NTRI.

10 Best Stocks to Invest In Right Now: Roku Why There's a Lot of Volatility Coming for ROKU Stock Source: Shutterstock

Roku Inc (NASDAQ:ROKU) undoubtedly is the riskiest stock on this list. And there certainly is a case for caution. The company remains unprofitable on even an Adjusted EBITDA basis. A ~7x EV/revenue multiple isn’t cheap; it’s even higher considering that almost half of 2018 revenue will come from the player business, which is a ‘loss leader’ for advertising and platform revenue.

But management also detailed a really interesting future on the Q4 call. The company is looking to build a true content ecosystem — and from a subscriber standpoint, already has surpassed Charter Communications Inc (NASDAQ:CHTR) and trails only AT&T Inc. (NYSE:T) and Comcast Corporation (NASDAQ:CMCSA).

Again, this is a high-risk play — but it’s also a high-reward opportunity. Margins in the platform segment are very attractive, and should allow Roku to turn profitable relatively quickly. International markets remain largely untapped. There’s a case for waiting for a better entry point, or selling puts. But I like ROKU at these levels for the growth/high-risk portion of an investor’s portfolio.

10 Best Stocks to Invest In Right Now: Brunswick Source: Shutterstock

Brunswick Corporation (NYSE:BC) is due for a breakout. The boat, engine, and fitness equipment manufacturer is nearing resistance around $63 that’s held for close to a year now. Despite a boating sector that has roared of late, BC — the industry leader — has been mostly left out.

Over the last year, smaller manufacturers Marine Products Corp. (NYSE:MPX), Malibu Boats Inc (NASDAQ:MBUU), and MCBC Holdings Inc (NASDAQ:MCFT) have gained 51%, 71%, and 68%, respectively. BC, in contrast, has gained less than 2%. It actually trades at a discount to MBUU and MCFT — despite its leadership position and strong earnings growth of late.

Efforts to build out a fitness business have had mixed results, and may support some of the market’s skepticism toward the stock. But Brunswick now is spinning that business off, returning to be a boating pure-play.

Cyclical risk is worth noting, and there are questions as to whether millennials will have the same fervor for boating as their parents. But at 12x EPS, with earnings still growing double-digits, BC is easily worth those risks.

And if the stock finally can break through resistance, a breakout toward $70+ seems likely.

10 Best Stocks to Invest In Right Now: Pfizer 3 Reasons to Be Bullish on PFE Stock Source: Shutterstock

Few investors like the pharmaceutical space at this point — or even healthcare as a whole. But amidst that negativity, Pfizer Inc. (NYSE:PFE) looks forgotten.

This still is the most valuable drug manufacturer in the world (for now; it’s neck and neck with Novartis AG (ADR) (NYSE:NVS)). It trades at just 12x EPS, a multiple that suggests profits will stay basically flat in perpetuity. To top it off, PFE offers a 3.8% dividend yield.

Obviously, there are risks here. Drug pricing continues to be subject to political scrutiny (though the spotlight seems to have dimmed of late). Revenue growth has flattened out of late. But Pfizer still is growing earnings, with adjusted EPS rising 11% last year and guidance suggesting a similar increase this year. Tom Taulli last month cited three reasons to buy Pfizer stock – and I think he’s got it about right.

10 Best Stocks to Invest In Right Now: Valmont Industries Source: Shutterstocks

Valmont Industries, Inc. (NYSE:VMI) offers a diversified portfolio — and across the board, business has been relatively weak of late. The irrigation business has been hit by years of declining farm income. Support structures manufactured for utilities and highways have seen choppy demand due to uneven government spending. Mining weakness has had an impact on Valmont’s smaller businesses as well.

Valmont is a cyclical business where the cycles simply haven’t been much in the company’s favor. Yet that should start to change. 5G and increasing wireless usage should help the company’s business with cellular phone companies. Irrigation demand almost has to return at some point. And a possible infrastructure plan from the Trump Administration would benefit Valmont as well.

Concerns about the recently imposed tariffs on steel likely have hit VMI, and sent it back to support below $150. But many of Valmont’s contracts are ‘pass-through’, which limits the direct impact of those higher costs on the company itself. Despite uneven demand, EPS has been growing steadily, and should do so in 2018 as well.

And yet VMI trades at an attractive 16x multiple — a multiple that suggests Valmont is closer to the top of the cycle than the bottom. That seems unlikely to be the case, and as earnings grow and the multiple expands, VMI has a clear path to upside.

10 Best Stocks to Invest In Right Now: American Eagle Outfitters

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American Eagle Outfitters (NYSE:AEO) is one of the, if not the, best stocks in retail — and that’s kind of the problem. Mall retailing, in particular, has been a very tough space over the past few years. And it’s not just the impact of Amazon.com, Inc. (NASDAQ:AMZN) and other online retailers. Traffic continues to decline, which pressures sales and has led to intense competition on price, hurting margins.

But American Eagle has survived rather well so far, keeping comps positive and earnings stable. And yet this stock, too, trades at around 12x EPS, backing out its net cash. And American Eagle has an ace in the hole: its aerie line, which continues to grow at a breakneck pace. aerie brand comparable sales rose 27% in fiscal 2017, on top of a 23% rise the year before.

The company’s bralettes and other products clearly are taking share from L Brands Inc (NYSE:LB) unit Victoria’s Secret. And the e-commerce growth in that business, and for American Eagle as a whole, suggests an ability to dodge the intense pressure on mall-based retailers.

In short, American Eagle isn’t going anywhere. There’s enough here to suggest American Eagle can eke out some growth, and a 2.6% dividend provides income in the meantime.

The stock already is recovering from a post-earnings sell-off last week, and should continue to do so. And longer-term, there’s still room for consistent growth, and more upside.

10 Best Stocks to Invest In Right Now: United Parcel Service Source: UPS

United Parcel Service, Inc. (NYSE:UPS) fell when the broad market did in February — and simply never recovered. A disappointing Q4 earnings report, in which investors saw signs of higher spending, drove some of the decline. But UPS stock wound up falling 22% in a matter of weeks — which looks like an unjustified sell-off.

UPS is going to have to spend to add capacity, and in this space too there’s the ever-present threat of Amazon. But UPS is an entrenched leader, along with rival FedEx Corporation (NYSE:FDX), and it at worst can co-exist with Amazon. E-commerce growth overall should continue to increase demand; there’s enough room for multiple players in the global market.

Meanwhile, the sell-off and benefits from tax reform mean that UPS now is trading at just 15x the midpoint of its guidance for 2018. And the stock yields a healthy 3.4%. Investors clearly see a risk that growth will decelerate, but UPS stock is priced as if that deceleration is guaranteed.

As of this writing, Vince Martin is long shares of Exxon Mobil and Nutrisystem. He has no positions in any other securities mentioned.

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