In yesterday’s YouTube video ( Beat the coming recession) I explained that a recession works by peeling the sock market onion. With each step down in the economy, more stocks report negative surprises or issue negative guidance. Investors and traders sell those stocks–Snap (SNAP) for example fell 39% in the day–and buy the shares of companies that have, for the moment, shown the ability to dodge the economic bullet. (So Alphabet (GOOG) climbs 6.47% when it reports that advertising revenue hasn’t dipped as much as the Snap results threatened.
But I pointed out, each time the recession peels away a layer of the stock market onion, it leaves fewer and fewer stocks on the “safe buy” side. And if the recession gets deep enough, many of these safe buys will wind up showing the same problems as earlier hit their sector peers.
So tomorrow, Friday, July 29, I’ll be selling shares of Chipotle Mexican Grill (CMG) out of my Jubak Picks Portfolio. The stock has had a very good pop in the last few days on evidence that its ability to raise prices–known as pricing power–has so far enabled the company to fend off the damage from 9% inflation.
I’m left wondering if that pricing power is enough to enable Chipotle to navigate a slowing economy with still strong inflation. Sure, I think the company will be able to raise prices, but I’ve got to wonder at what point the (unofficial) recession leads to lower sales. (Mind you, I think Chipotle is an extremely well-managed company, and I think its strategy of using online orders to increase “through-put” at its stores is exactly the right one for the times. But a trailing 12-month price-to-earnings ratio seems expensive in this market and economy.)
I added Chipotle Mexican Grill to my Jubak Picks Portfolio on January 26, 2022. The shares were up 13.37% since that addition as of the close on Thursday, July 28.