We recently compiled a list of the Jim Cramer’s Hottest 10 Stock Picks. In this article, we are going to take a look at where Chipotle Mexican Grill, Inc. (NYSE:CMG) stands against Jim Cramer’s other stock picks.
In a recent episode of Mad Money, Jim Cramer talked about what he sees as Wall Street’s biggest oversights this earnings season, especially on a day when the Dow dropped 141 points, and the NASDAQ advanced 0.2%. Cramer highlighted the misleading narratives surrounding the impact of GLP-1 drugs on food and beverage companies, the reluctance to lower prices post-pandemic, the skepticism around AI investments, and the persistent belief that Intel remains dominant in the tech sector.
Cramer argues that if companies were more honest about their changing situations, they would gain credibility and potentially boost their stock prices. Instead, by withholding important details, they leave investors confused and more likely to make poor decisions.
“If companies just own up to their own changing circumstances, things would be so much easier for everybody. But who wants to admit mistakes? They earn a lot of credibility for themselves leading the higher stock prices down the line, instead their stocks languish as investors try to assess what’s really going on and they presume the worst not the best.” said Cramer.
In a time filled with so much misinformation, Cramer emphasized how easy it is to be misled and underscored the need to recognize these gaps. According to Cramer, despite approximately 20 million Americans reportedly using GLP-1 weight loss and diabetes drugs, food and beverage companies refuse to acknowledge any negative impact of these medications. They won’t even suggest it. Cramer argues that their denial of the effects of GLP-1 drugs is simply untrue.
“We know that people eat much less when they take these GLP-1s and consume less snack food because it tamps down on cravings. …These drugs are incredibly powerful. The idea they aren’t doing damage to the snack food companies is insane.”
Cramer commented on the rising prices, stating that most companies see no need to lower them, despite significant hikes during the pandemic. He pointed out that airlines, which have consistently underperformed, refuse to reduce fares, behaving as if the price hikes never happened.
“In the airlines, there are endless underperformers, they simply wouldn’t roll back prices, they act as if they didn’t even take them up in the first place.”
The same goes for hotels and entertainment venues, which sharply increased prices during the pandemic and now resist lowering them, even as demand forecasts decline. Cramer also noted that many restaurants either claim their price hikes haven’t hurt sales or refuse to acknowledge the need to roll back prices.
“They raised prices drastically during the pandemic. They won’t cap the raising prices too much even as the forecast is coming down hard.”
Discussing AI, Cramer strongly disagrees with Wall Street’s claim that AI investments are a waste of money. He points out that many believe big companies spending heavily on AI-related video chips aren’t seeing any significant returns, and are only investing to keep up with competitors (see 33 Most Important AI Companies You Should Pay Attention To).
“We’re constantly being told that none of the big companies spending a fortune in video chips for AI has seen any meaningful return on that investment. They’re only doing it to prevent their competitors from getting an edge. That’s what we keep on hearing. That’s absurd!”
Cramer also challenged the common belief that INTC remains a leader in its sector. He dismissed claims that the company is poised for a major comeback, particularly in data centers, and that it has a chip capable of rivaling its competitors’ dominance. He pointed out that the company’s financial health tells a different story, citing the company’s decision to cut its dividend last year and suspend the remainder this year. According to Cramer, these actions don’t signal dominance, and he warned that this is not the same semiconductor company it once was, despite what the company might claim.
“I keep hearing that Intel’s gonna make a huge comeback that is catching up the others in the data center. That the data center has an Nvidia killer in GE-3. That it’s using the chips to sack money from you and further it’s dominance. Dream on! Have you seen Intel’s balance sheet? Can you read one? Do you think a company that cut its dividend last year and then suspends what was left of it this year in order to assert its dominance?! Look, this is not the Intel of old even though we want it to be. Despite Intel’s protestations, I wouldn’t want to be Intel’s partner.”
A chef plating up a wide variety of dishes for a restaurant chain.
Chipotle Mexican Grill, Inc. (NYSE:CMG)
Number of Hedge Fund Investors: 60
Chipotle Mexican Grill, Inc. (NYSE:CMG) runs a chain of restaurants that offers a streamlined menu of Mexican-style dishes. Chipotle Mexican Grill, Inc. (NYSE:CMG) focuses on using fresh, high-quality ingredients and traditional cooking methods. Currently, Chipotle Mexican Grill, Inc. (NYSE:CMG) operates 3,460 locations across the USA and 70 international restaurants.
Jim Cramer noted that Chipotle Mexican Grill, Inc. (NYSE:CMG), often seen as one of the best-managed restaurant chains, has admitted that their high prices in California are impacting sales due to the state’s minimum wage increase. According to Cramer, Chipotle Mexican Grill, Inc. (NYSE:CMG) stands out because they are willing to recognize and address their issues. He emphasized that their success and strong stock performance come from their ability to own up to problems and make necessary changes.
“Chipotle, arguably the best run restaurant chain, admitted the raising price is too high in California because of the impact on the bottom line from the state minimum wage. It hurts sales and they acknowledge it. Is there any reason why Chipotle are the best acknowledge best-run restaurant chain with the best stock? They own what’s wrong, and they change it.”
In its most recent financial report, Chipotle Mexican Grill, Inc. (NYSE:CMG) reported a 14.3% increase in revenue compared to the previous year. This growth was fueled by both higher prices and more customers visiting its restaurants. Chipotle Mexican Grill, Inc. (NYSE:CMG)’s investment in online ordering and delivery has also paid off, leading to larger average sales per transaction. Additionally, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s focus on introducing new menu items and special promotions helps maintain customer interest and keeps the brand fresh.
Ensemble Capital Management stated the following regarding Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q2 2024 investor letter:
“Finally, we’d like to discuss Chipotle Mexican Grill, Inc. (NYSE:CMG), a nice long term success story in our client portfolios that we recently sold out of due to its high valuation after holding for over 4 years. This was an exit that was driven by the strong performance of the stock, increasing about 370% over the past 4 years from March 2020 to June 2024.
Chipotle has been a very successful stock as a result of the strong business performance of the company. Under Brian Niccol, its CEO since 2018, it has accelerated its growth, improved operations and efficiency, and set its sights on higher goals in bringing its casual healthy Mexican cuisine to all of North America and increasingly, the world.
We first bought the stock in client portfolios in March 2020 on the thesis that there was substantial growth runway and margin leverage in the business as it scaled. The initial reaction of the COVID pandemic shutdowns on the stock was severe, with a nearly 50% drawdown, which provided the opportunity to start buying at prices that we believed offered good future returns. As it turned out, underlying acceleration in demand for Chipotle and its pricing power proved the strengths of its offering and business model shortly after…” (Click here to read the full text)
Overall CMG ranks 10th on our list of Jim Cramer’s stock picks. While we acknowledge the potential of CMG as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.