A More Riveting Seattle-Denver Bowl

 | Feb 02, 2014 | 1:15 PM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:




When you think Seattle vs. Denver, you are thinking Seahawks vs. Broncos. Me? I am thinking Starbucks (SBUX) vs. Chipotle (CMG). When you are thinking of the Super Bowl, I am thinking of the Super Bowl of stocks -- and, after the reports we've seen for both in the last two weeks, I think it is fitting to stack them against each other for Super Bowl weekend.

First, let me just say that both of these companies reported superb quarters, two of the best that we have had in 2014. Both have fantastic managers. Howard Schultz is one of my Bankable 21, the CEOs in Getting Rich Carefully with which I suggest that you invest. Schultz is so important that when he left the company for a short period, the business got blasted and the stock obliterated. Chipotle co-CEOs Monty Moran and Steve Ells, plus chief financial officer Jack Hartung, have meanwhile taken the concepts of "organic" and "natural fast food" and turned them into an ethos.

So how do they stack up? Frankly, they're a little like the Super Bowl teams themselves. Schultz is Peyton Manning: super reliable, been at it forever, really knows the game and can call audibles at the line from reading the defense, be they from China or India or Mexico or anywhere else on the globe. Chipotle is run by a two-headed Russell Wilson, with many years of playing time ahead. They can scramble, but they aren't veterans, so they are more prone to ups and downs. Still, in the end, they can get you there.

Starbucks, at some $53 billion in market capitalization, is the quintessential senior growth name, still with lots of runway but essentially everywhere already. Chipotle, on the other hand, has lots of room to run in the U.S. before it cannibalizes. In fact, it needs more stores, because the company's biggest issue is that its lines that are too long! It has barely scratched the surface, and its $17 billion market cap doesn't truly reflect the opportunity ahead of it.

Chipotle is also just beginning to roll out its new Shophouse Southeast Asian Kitchen concept, and it's incubating a new pizza chain. On its earnings call, management said ShopHouse is ahead of where the Chipotle chain had been when it started. That is a huge statement from a very conservative management team.

Both companies are constantly innovating. You may think that there are already Starbucks locations everywhere you look, but the company is still finding plenty of places to put them in the U.S., and new ones are not hurting its comparable-store sales. Starbucks is also putting up stores overseas, all over the globe, and China in particular is a market that could surpass the U.S. in size.

Turning again to Chipotle, the company is gaining momentum. It revealed that much Thursday night, when it posted 9%-plus comparable-store growth. That's extraordinary -- especially given that, before Chipotle, the highest number I had seen in quick-serve this year had been Starbucks, with a 5 handle. No wonder Chipotle could rally $58, or 11%, in one day.

Still, in the end, one company makes coffee and the other burritos in very competitive industries -- coffee and fast food. Doesn't that constrain the price-to-earnings multiples? Doesn't that mean these stocks will eventually run out of gas?

Normally, yes, it would. But, just like the Seahawks and the Broncos, two No. 1 seeds, these two companies aren't really just fast-coffee and fast-burrito outlets. This is where the rubber hits the road.

Starbucks is a hotbed of change. Be it the worldwide Teavana roll-out in a world that's as obsessed by tea as it is by coffee, or the food initiatives, or the amazing loyalty -- augmented by digital technology, including mobile payments -- Starbucks reinvents itself on the fly. As Howard would say, it is full of flywheel energy that can be stored and then flung at a problem, or an opportunity, at a moment's notice. Howard's so passionate about these other big-think initiatives that he is exiting day-to-day management of the company in order to explore how to create value from all of the digital DNA in the company.

Chipotle, on the other hand, isn't really about fast food. It's about rebelling against the food chain. It's about natural and organic food that, while more costly, tastes better and is healthier for you. Chipotle's tapping into one of the biggest veins of our time: the belief that you can live a healthier, more enjoyable life by eating better. Chipotle is at the epicenter of the movement, as anyone who has seen the Farmed and Dangerous trailers would tell you. Chipotle is the anti-McDonald's (MCD) -- a cruel irony, given that it was once owned by McDonald's.

So both stocks have long runways, though I would say that the Starbucks runway is more plowed, and both have big secular trends in their favor. In Starbucks' case, I believe, the digital and social and mobile-payments system are what could be worth more than Starbucks the stock, much as PayPal may be to eBay (EBAY). Chipotle has the figurative Good Housekeeping Seal of Approval, and the company only makes that seal more indelible by the day.

So which do I like best? Who wins? This Super Bowl can't end in a tie, as much as I would like to call it a draw. I think Starbucks has a terrific veteran team with veteran leadership, but this market wants youth. It wants to see a multiyear path of growth that, but for the sky, is facing no fences.

What this means is, even though Starbucks shares have pulled back and are well off its high while Chipotle is screaming to its all-time high, this market will like Chipotle more than it will Starbucks. Growth is everything right now -- hyper skyrocket super de duper growth -- and those days may be behind Starbucks unless the company can unlock the value within. Chipotle, on the other hand, is riding a health wave that's stronger than are any brews.

So, as absurd as it seems after a huge climb, I am going with the red-hot burrito and not the Triple Venti. When forced to choose, I am going with Chipotle.

Random musings: Don't forget to come see me next Tuesday at 7:30 p.m., at the Union Square Barnes & Noble in Manhattan, where I will be autographing my new book Get Rich Carefully.

Columnist Conversations

today is a good day to lighten the load and take some positions off the table. SOLD WB OCT 85 CALL AT 11 (i...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.