Two Growth Stocks Restore the Market's Faith

 | Nov 21, 2012 | 10:08 AM EST  | Comments
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High-multiple heaven! Thank you, Chipotle Mexican Grill (CMG), with your accelerated share repurchasing showing how cheap you really are. Thank you, Salesforce.com (CRM), for delivering a quarter that is led by strength in Germany and France!

Sometimes we can't remember why we like growth stocks. Sometimes because it has been hellish, frankly, ever since Chipotle dropped 100 points in a day. Now it seems to have stabilized, and that can lead one to the conclusion that another part of the bear -- the relentless compression of the high-multiple plays -- may be running its course.

I was stunned last night when Salesforce.com reported, because I expected some hair on its quarterly results, between the tremendous efforts being made in Europe, at a time when that seems pretty dicey, and the impact Hurricane Sandy had on so many clients.

Wrong and wrong. The time spent getting big European clients that had no Salesforce.com software looks like a home run, and Sandy wasn't even a glancing blow.

What I liked best about the quarter was that CEO Marc Benioff, after being cryptic, at least to some, about how he gets to his phenomenal dash to $3 billion in revenue, now breaks out his numbers the way that the Securities and Exchange Commission will probably say serves as a model for difficult-to-gauge subscription accounting.

Benioff gives you a half-dozen totally open-kimono ways to judge things. It's as if he took every single critic from Herb Greenberg at CNBC to the Sanford Bernstein naysayer and said, OK, we have listened, and here are the numbers you are looking for, and it turns out they are pretty darned good. If you don't understand how to read them, go back to his September tutorial, which explains how to judge deferred revenue in a simple way.

It was an amazing quarter, and the acquisitions he has made, many good, some bad, are creating a brain-trust that is the envy of the software industry.

It's a buy.

Chipotle is a different story. Many believe that the company has lost its way or has been sliced up by the competition. I think it is entirely possible that the competition was sampled in the last few months, notably the higher-end Taco Bell offerings, but I bet they were found wanting, as Chipotle is more of an ethos than an eatery. It remains with the other two in the troika, Whole Foods (WFM) and Starbucks (SBUX), a total go-to name for high growth.

When you see these stocks rally, consider them the blood pressure and the tongue depressor that doctors use to measure health.

The patient looks OK today, still one more day when the key levels of the S&P 500 are tested and, hopefully for the bulls, not found wanting.

Random musings: Cooking for the kids home from college today, so I want to wish everyone a Happy Thanksgiving and hope that you are enjoying the new, revitalized Real Money.

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