This commentary originally appeared on Real Money Pro at 10:25 a.m. ET on Monday, Sept. 12. Click here to learn about this dynamic market information service for active traders.
I'm making a long of both shares and calls in Chipotle Mexican Grill (CMG) my Trade of the Week. I paid $426 a share for some CMG this morning, and I plan to soon buy calls in the stock as well.
Now, I took a profitable trading short in CMG last Wednesday on word from Pershing Square's Bill Ackman that he had taken a 9.9% activist position in the struggling restaurant chain. However, I covered my position later that day at much higher prices (while still making a profit).
That said, CMG is now sharply lower than the highest price it was trading at following Ackman's announcement. I also spent a few hours over the weekend researching Chipotle, and I think upon further reflection that Ackman's move was brilliantly timed.
I'd also note that Jim "El Capitan" Cramer last week wrote a thoughtful, bullish analysis on the stock. I agree with all aspects of Jim's post, but especially with Jimmy's observation about how the calendar shows that enough time has more or less passed since Chipotle's E. coli woes to buy the stock. (He used previously outbreaks at Jack in the Box (JACK) and Yum Brands' (YUM) Taco Bell unit as templates.)
The lesson to learn here is that restaurant chains' comps almost always recover and turn back up after such events. Moreover, let's recognize that Ackman has plenty of history of successful investments in the restaurant space, such as Burger King (BKW) . He's implemented practical, creative ways to unlock such stocks' values in the past.
Lastly, Ackman is under the gun to perform well following some recent high-profile investment flops. That makes his large investment in Chipotle even more important to him -- and perhaps to other CMG investors as well.
To me, this last point might be the most compelling reason to make both a trade and an investment in Chipotle.