Shares of Chipotle (CMG) have rallied more than 70% this year. Don’t feel bad if you missed it, you’re not alone.
After all, shares of the burrito joint got hammered a few years ago. In general terms, it’s typically not good for business to have your company name and the phrase “E. Coli outbreak” in the same headline.
No, that’s not good.
To give you an idea of the damage, four years ago, shares of Chipotle broke above $750. Then the E. Coli scandal broke out. Within a few weeks, CMG dropped below $400 per share.
Nobody wanted to touch the stock with a ten-foot pole. Wall Street turned against its former darling. By early 2018, the stock was all the way down to $250 per share.
That was a massive loss and it was all self-inflicted.
To their credit, Chipotle worked hard to handle the crisis. They won back customers and the business is now as strong as ever. Just recently, the stock got to $810 per share. That’s a profit even if you were unlucky enough to buy CMG at the exact peak.
It just took some time. That’s really the key to being a good investor. Make the right move and then wait. As the great Jesse Livermore said, “It was never my thinking that made the big money for me, it always was sitting.”
At this point, investors tend to think about using a rear-view mirror. But I can tell that buying CMG at $250 was not an easy call. It took guts to jump into a stock that’s down by two-thirds.
With thousands of stocks being traded every day, there must be one that’s in a similar position to Chipotle 18 months ago. You can never be positive, but one candidate I want to highlight for you is 3M (MMM).
3M is a lot more than yellow sticky notes. It’s a Dow component and one of the world’s largest diversified industrial corporations. The company is involved in so many businesses it’s hard to classify them other than calling them an industrial conglomerate.
Formerly known as Minnesota Mining and Manufacturing, today 3M employs nearly 100,000 people. Last year, the company had total revenue or more than $32 billion and 3M’s total profit was more than $5 billion.
So why has the stock been so lackluster? Since late October 2017, the S&P 500 has gained about 22% when you include dividends. But 3M has lost 22% including dividends. It’s almost a perfect mirror image.
It’s not as severe as Chipotle but there’s a similar dynamic.
Part of the reason for the lagging performance is fears of a trade war. That would not be good for 3M. What e. Coli was to Chipotle, losing overseas customers would be for 3M. Also, the Q1 results were terrible. The stock suffered its worst daily drop in more than 30 years.
On the conference call, management slashed its forecast for 2019 earnings by about 11%. The company blamed it on weak sales in the auto and industrial sectors. Wall Street was not happy.
But there’s been good news for 3M lately. The last earnings report was very encouraging. For the second three months of the year, 3M made $2.20 per share. That was 15 cents better than Wall Street’s consensus.
I was shocked to see the stock gap up 5% after the earnings report. Frankly, I think some investors had convinced themselves that 3M was going to bomb this report as well. 3M also stuck by its guidance for this year. It seems that everyone has been down on this stock for so long, they couldn’t even imagine good news.
There’s also another important reason to like 3M right now—the dividend. The dividend currently yields 3.25%. That’s about 120 basis points more than the 10-year yield.
But that’s based on the current dividend. I should note that 3M has a pretty good track of raising its payout. Six months ago, the company announced its latest dividend. That was 3M’s 61st consecutive annual dividend increase. The last time 3M didn’t raise its dividend, the Dodgers had just left Brooklyn.
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