Lazy Man and Money

Is it Time to Buy Chipotle?

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Nearly two months ago, my new BFF made a big bet on Chipotle buying nearly 10% of its stock. Yes, that was my billionaire BFF Bill Ackman.

Unfortunately, Billy didn’t give me a courtesy call beforehand. (Naturally, as such a call might violate every security law. Also, Bill Ackman isn’t really my BFF… just in case you didn’t the joke.)

Ackman making such a large investment in Chiptole was an extremely positive sign. The stock jumped up around 7% on the news, if I’m reading the charts correctly. By the end of the day, it was trading at nearly $440.

Flash forward to yesterday…

By the end of trading, Chipotle was at $368 and change, losing more than 9% after announcing earnings. You can buy Chipotle now even cheaper than the “smart money.” That always gets my attention.

Chipotle is cheaper for a reason. It didn’t just drop in half from $750 to $375 for nothing. Unless you’ve been hiding under a rock, you’ve heard about the health issues. It scared customers away. Revenues are down. Chipotle had to resort to giving away free food.

The big drop in stock price due to people staying away… at least more than what analysts thought. Comparable sales dropped 22% from the previous quarter and they were predicted to drop only 18%.

I love when a stock is beat up. I view it as being on sale, “Buy Chipotle, now 50% off!” I also view it as waving a flag, “hey, it can’t get any worse.”

I also believe that the best time to visit a restaurant is after a health scare. It’s a combination of “they’ll be extremely focused on preventing that from happening again” and “lightning doesn’t strike twice in the same place.” (Although with Chipotle, I think it did strike twice.) The health scare problems seem to be well behind it now. The storm has ended and it feels like it’s time for the clouds to pass and the sun to come out.

On the other side, even after the big drop in price, Chipotle has a P/E of ~55. Compare that to McDonalds which has a P/E of 21 after performing well in the last 15 months or so. Shouldn’t McDonalds be trading at a premium P/E and Chipotle trading at the discounted P/E? A 55 P/E is high for a company that is performing well. I’m shocked to see that valuation on Chipotle given its problems. It feels like paying a premium for a car that has some parts falling off it. Even if you think you can repair it cheaply, why pay the premium?

I’m tempted to make the move and buy some Chipotle, but I think I’m going to pass for now. I simply can’t balance the following factors in my head: better than “smart money” sale, recovery from health scare, still trading at a high P/E. If I want to gamble, I’ll get a casino app for my tablet. It’ll probably be a lot more fun. At least I’d know I’d be playing with a known set of rules.

As for investing, I’ll be sticking to boring stocks like IBM. It continues to have a great price/earnings ratio, a very good dividend, and a strong stock buyback program. From a public relations perspective, making headlines for the right reasons with Watson is the opposite end of the spectrum than why Chipotle has been in the news.

I’ll still keep Chipotle on my watch list though. As it the “retailer” (stock market) makes it cheaper and cheaper, it’s getting more and more tempting for me.

Use Your Gas Savings to Save and Invest

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Yesterday, I was running an errand and I noticed something different about the local gas station. The prices they were advertising no longer started with a crooked number. Gas was $1.999 (I’m going to acknowledge that weird 9/10 of cent they sneak in there.)

In much of the country this is old news. And in other parts of the country the price still starts with a crooked number.

The point is that it was a catalyst for me to think about how low gas prices have gotten. If you work in the energy industry, this is a bad thing. I’m sorry for you. I feel a little of your pain as I’ve been buying oil stocks (ticker: USO) when it was more than twice the price it is today.

For everyone else, low gas prices probably mean you have some extra money left over each week. You could use this money to support the local economy (a nice meal out perhaps), but I’m going to suggest something different and very predictable:

Save and Invest it.

If you have a brokerage account already set up, you can probably automate $50, $75, $100 a month into it. Personally, I like to use My Dobot account as I can text “save $50” and be done with it. With the way Dobot works, it’s already saving money. To read more how Dobot works read my review.

It might not make sense to buy a stock with $50 as commissions can eat up a large chunk of that. You can set up an automatic deposit with a lot of mutual fund companies to avoid this.

You might be thinking that $50 or $100 a month isn’t going to add up to much. (Quick math: that’s $600 or $1200 a year.) Depending on your current financial state it may not mean much. It’s all relative right? Bill Gates is certainly not going to care too much.

However, it may mean more than you think.

The stock market has been moving down since the start of the year. This means that you can buy some stocks on sale. (Full disclosure, I’m pimping out the IBM stock that I own. It’s trading at 2008 prices with a P/E under 9… and it pays a great dividend).

It’s a perfect match. You have extra cash from the low gas prices and the stock market is low so your money buys more shares.

If you want to double dip, you can do some of what I’m doing and buy oil stocks with your savings. I’m not sure you should be investing in USO like I am (I’m starting to think I shouldn’t be investing in it), but some of the big gas companies like Exxon and Chevron could be safe bets. The beauty of this idea is that if gas prices recover and you can no longer put that extra money into those companies, you’ll be happy to see their stocks have very likely increased as well. It’s easier to pay more at the pump if you know that you are getting it back in your brokerage account, right?

What are you doing with your extra gas money? Let me know in the comments.

Let’s Go Bargain Stock Hunting

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I have a watchlist of 24 stocks and mutual funds. They are all companies that I either own, have thought about owning at some point, or an MLM company that I keep track of (for when the FTC inevitably acts on Herbalife).

Just recently, I’ve noticed a few of the stocks have “gone on sale.” That is to say that they’ve gone pretty low in pricing. However, they are big companies and brands that you know… at P/E ratios that a bargain hunter can love. This isn’t a deep dive… I’m using no stock screener. It’s just an observation. I’m thinking about investing in them (except for the one I already own) for the long term and I want to share that.

The three on my watch list that stand out are:

Wal-Mart

You might have noticed that Wal-Mart dropped 10% yesterday. When one of your 24 stocks has a double digit move, it is hard not to notice it. I was extremely busy, but I did some quick research. It’s not enough to make a stock buying decision on, but this is my take from what I’ve read.

Wal-Mart is expecting lower profits for perhaps the next couple of years. It’s heavily investing in infrastructure to help speed future growth. It is expanding its stock buy-back program to $20 billion and it pays a decent dividend. It’s easy to see the bad news and I don’t want to overlook that. However, a historically rock-solid company is trading at a P/E of around 12.5 and seems to be doing the right things for the long-term.

If you are a buy-and-hold investor, I think you could do a lot worse than picking up Wal-Mart at 30% off year to date.

IBM

This is a stock I’ve held for probably more than a year now. It’s another company with some bad news. They’ve had declining revenue for what seems to be 6 trillion straight quarters. The huge company had a lot of momentum into technology that isn’t very profitable. They’ve been steadily moving away from those from those business and towards more profitable businesses, but it is a slow process.

I do like what IBM has done while they restructure. They’ve been buying back tons of shares. That has steadily grown their earnings per share and lowered their P/E to under 10. It pays a healthy dividend. There’s some huge growth potential with their Watson technology.

I read that IBM is Warren Buffett’s biggest holding. Overall, it feels like when I had Apple at $70 and it jumped up to more than $125.

Ebay

For years I’ve watched this stock trade in the 50s. The other day I saw it around $23. I was apparently away from my computer the day that Paypal spun off and took that value out of Ebay.

Ebay has a $30 billion market-cap, which is much smaller than the previous two Goliaths. I view that as having more room to grow. It has a monopoly in the online auction business. Truth be told, I simply use Buy It Now, so it is more like a store to me, but the lack of competition is notable.

Finally, it too has a P/E under 10, so there’s value there. It’s also on a 15% off sale after the Paypal divestiture. Unfortunately, it doesn’t pay a dividend.

Consider a pick for a little variety compared to the previous two.

Summing It Up

If you are interested in holding stocks for the long haul, I think you could do lot worse than these three stocks. There’s a saying that you make money on the buy and not the sell. I believe that’s the case here. It feels like the right time to buy.

That said, I also thought it was the right time to buy SodaStream at various points as the company has crashed from $50 to $15. Something would have to go terribly wrong, like losing 2/3rd of their earnings, for any of these companies to do something like that. I don’t see it happening.

If you are going to buying stocks, you are going to need a brokerage. It’s been a long time since I looked at the best ones, but I do like the idea of Motif Investing. You can create a basket of all these stocks in just one trade. They’ll even give you up to $150 to get started.

Analysis of My Best and Worst Investments

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A couple of years ago, I decided to take a small portion of my retirement and actively invest it. Unfortunately, I didn’t do it in such a way that I can easily gauge performance. Fidelity’s tools aren’t all that great (or maybe it is that I can’t find them), but it is further complicated by the addition of new cash.

I’m kicking myself for setting up something so flawed. At the same time, I don’t know how I would have done much better. I don’t want to change my whole retirement structure so I can report performance on the blog (though it would be worth knowing for myself).

Like every stock-picking investment to date there’s been some good and some bad. I thought I’d review them and see what, if anything, can be learned from them.

I’m going to start with the good. It’s going to look like sunshine and rainbows… that’s the nature of covering “the good.”

  • Groupon – I dollar cost averaged at buying shares around $4 a share and sold them for around $8 a share. This is a rough estimate. I usually retain some shares in businesses that I believe in, but I just wanted to flip it and get out. I realized that I bought it for the wrong reasons. I bought it because I thought it was cheap and couldn’t get cheaper (downside protection is a common theme). It worked, but I wonder if it is more luck than skill.
  • Zenga – Much like Groupon, I bought it at a very cheap price… around $2.50 a share. I had confidence it wouldn’t go much lower because they had cash and real estate assets almost equal to $2.50 a share. It was like the company was valued at zero. It got up to around $4 and I sold. I didn’t believe in Zenga’s long-term business, so I got out.
  • Facebook – This was my biggest win. I bought shares that I dollar cost averaged at around $21.25. Unfortunately, I sold most of them at around $32. I still hold 25 fantastic shares, which at $94 is not half bad. Remember all that talk about the bungled IPO? Me neither. Remember the talk of ridiculous evaluations? Well at a P/E of 95 it isn’t cheap, but it isn’t crazy like Amazon either.
  • Google – I’m not sure this counts as part of my experiment because I bought so long ago. I bought at split adjusted $295 a share. At $665 today, it shows no signs of slowing down.
  • Apple – I loaded up at a split-adjusted $71 a share, but sold off a pile at $100 a share. It would have obviously been better to hold onto the shares, but I’ll look optimistically for a minute.
  • –

    • And now for the bad…

    • SodaStream – When it dropped from $50 to $37, I jumped in. Of course I’m smarter than the market and a small revenue miss wasn’t a big deal… especially in getting a 25% discount. Today it trades at $17. I had a few more trades in between where I made a few dollars buying low and selling a few dollars higher, but I took a sizable loss on most of the shares.
    • IBM – I bought it at around $170 and had a chance to sell at $200 a share while back. Now it is $160. I read it is Buffett’s biggest holding. I think he likes it for the same reason I do… a P/E of around 10. The revenues are shrinking every quarter, but they spend a lot of money buying back shares. They also pay dividends. IBM is in transition as it moves away from mainframes and chips and more towards cloud computing. It’s taking years and will probably take a few more, but I think it is going as well as could be expected.
    • Yahoo – I bought this because the money they were getting from the Alibaba shares essentially equaled the value of the company. I figure this gives me Yahoo’s business for free. I was up for a little while, but now I’d down about 7%. I think Marissa Mayer is very smart and I’m optimistic they’ll get things figured out.

    You’d think there would be a lot more bad in there. The “bad” is mostly in the form of lost opportunity. There are some investments that did nothing while the general market has gone up. My investment in Russia stocks is one example. My investment in Twitter is another example of money going nowhere.

    If I had to guess I’d say that it probably all comes out to market average. I did well with some and others I had essentially dead money. This reinforces what I thought all along… stock picking isn’t going to driver of wealth for me. I’m fine if I get market returns… or even slightly below market returns.

    Why would I be fine with below market returns? It’s a small amount of my portfolio. I’m learning a lot. I’m having fun. Losing or gaining a percent or two on a small amount of a portfolio isn’t going to add up to much over the long haul.

    All that said, here are the things I’ve learned about myself in investing:

    1. I Like Technology – I already knew that, but I had to point out the obvious here. Almost all of the companies mentioned are, at least in large part, software companies. (Apple is more software than most people think.)
    2. I Like Buying Cheap and getting Downside Protection – Even the big technology winners were bought fairly cheaply. It may be hard to remember it now but there were major questions about Facebook and Apple.
    3. I Let Loose the Small, Fad Companies – I viewed Zenga and Groupon as fads and I’m probably more lucky than good in making money with them.
    4. Don’t Necessary Buy What You Love – I’m a huge fan of SodaStream’s products, but that doesn’t necessarily lead to profits. I thought that their focus on healthy fizzy water and cost savings would be a winner with consumers, but I guess I was wrong. I can’t see why it isn’t in most households. I’m probably naive, but I keep holding on to a few shares hoping the general public sees what I see.

      It’s probably a very bad omen, but I did the same with shares of Palm. (Yes, I laugh at Samsung commercials showing off wireless charging, when I enjoyed a superior version of it back in 2009.)

    I think the #2 and #4 points are probably the best ones to take to heart. Even my loss in SodaStream could have been much, much worse if I didn’t buy on the dip.

    If I were to translate these insights into an investment today, I’d say that commodities look attractive. I’ve been saying that for some time only to see them lag the market or even lose money.