How do you use a sell-off? I mean really, how do you profit from one? Memory. That's how you do it. Memory of what was mispriced, got plastered and gave you an opportunity to buy that you probably shouldn't have gotten to begin with. So on this tepid day, where it looks like nothing's happening, let me demonstrate the power of memory to make money.
Let's start with a simple one: Chipotle (CMG) . Can a burrito change the world? I have no idea. Can a burrito change agribusiness and we support farmers who want to make food that's not processed, and starts with the base of Soylent Green and the use the Donner Party Settlement Cookbook, or the Twilight Zone equivalent of aliens who come here and put out the very useful cookbook "To Serve Man". I think a chipotle burrito can save man from processed food with ingredients that look like the reason why I dropped out of chemistry class to preserve my transcript.
I saw the ad and I said to myself, remember, the stock of Chipotle got crushed by people who didn't like the quarter. But did those people know anything? No. Here's why. Chipotle is a company with a stock that trades on how it is doing. I know that sounds simplistic but this weekend I picked Chipotle as our kicker in the winning portfolio for the NFL championship. I did it because I wanted people to see that Chipotle is capable of kicking a 62-yard-vehicle.
That was one of the dumbest metaphors. I should have said that Chipotle was a tight end, I mean Gronk, that would have gotten people to remember that Chipotle can block and he can catch and he can score touchdowns at a whim. Then maybe I could have reminded you that Chipotle had just dropped ridiculously from 1523 to 1477 and that it had to be bought because Chipotle comped at more than 11%. Meaning that Chipotle had an extraordinary month. I don't care about December and November. I care about the month that just ended.
I flagged that the action in the stock was "wrong" meaning that people simply reacted like, excuse me, chowderheads and if you just buy it, have some memory and buy it, you will do well. Today it hit an all-time high. Don't sell it. Right now Chipotle's banging it out with delivery and with all sorts of new ways to pick up. They are doing these numbers against pre-Covid business when the stores were packed. Don't you think they will Gronk it when they get to February and March. We have had a bid on Chipotle's stock ever since they had an incident that any restaurant chain could have involving illness. We said the stock public forgets in 18 months, something we discovered when we looked at previous incidents at other chains. While we never wavered in telling you to buy it, we doubled down on the darned stock on the 18th month. You have gained more than 1000 points since then.
How could the market be so wrong? For the same reason that lots of stocks are wrongly priced: people are scared when they see a stock go down and they figure it must be going down for a reason. Yes, absolutely, but in Chipotle's case it was the wrong reason. People were looking at old numbers not the future numbers.
Chipotle may be the best tight end ever to play the game.
Not that long ago we had Constellation Brands (STZ) on, the big brewer that also owns Modelo and Corona as well as some great wines and spirits. I thought it was a shoot-the-lights out quarter because everyone's at home, no bars are open, and they just pulverized what I thought they could do putting up impossible numbers.
I own Bar San Miguel, a small plate Mexican mothballed tavern in Brooklyn. I was so concerned that the new Modelo that they launched would be hurt because how many restaurants were not even allowed to be open, particularly in Texas and Covid-ridden California.
Instead the numbers actually exceeded what they would have done - I am not kidding - if the bars were open, this despite the fact that it's so difficult to even get product out of Mexico because of worker shortage brought on by Covid. Constellation caught that and had the absolute best safety record. Not only that but Pacifico, my favorite brand, is on fire. They cannot produce all of the new Modelo because demand is too great.
Forget everything I just told you, though. And focus on these two things: their hard seltzer is going to be the biggest home run, and more important Bill Newlands, the CEO, told us to get ready for the cannabis explosion because of Washington. They own a ton of Canopy Growth (CGC) and can buy it all when the pot goes legal. I've known Bill forever, I even put on a cannabis seminar with him as the keynoter. He had never been as bullish as he was last time he was on. I remember thinking "darn it all, we good a twofer, great numbers at Constellation and a head's up that Canopy could roar because of Washington. Found myself thinking about opening a Cannabis bar for the great re-opening.
Oops. Both stocks got hit. Both. Constellation belly-flopped from $230 to $209 after a few weeks' time. Canopy fell almost a buck from $30 and change to $29 and change.
The market was wrong. Today Constellation on the same set of numbers mind you, nothing new, hit $233 and I think it takes out its all-time high in the $240s. Canopy? Hit $50 today. $29.5 to $50.
He gave you a twofer, most spurned it.
Last year I met David Simon at the Super Bowl. If you don't know Simon, he's the amazing mall operator. When his stock got annihilated because of Covid I reminded people that this man has generated $33 billion in dividends and I had total faith that as malls were dropping like flies he would be a survivor, maybe the only survivor because he had all good malls, in all good places. That people would shop again especially if we have an exodus to the suburbs.
Today Simon reported and it was remarkable. His malls are doing incredibly well, something that I was so clear that he shouted it on the last call and with a vaccine on the horizon I now think that this might be among the top stories out there because his competition has dwindled or been crushed. Not only that but he bought J.C. Penney recently and I know you won't believe it, but he's turning it around. His plan, with his handpicked management team is going to generate a huge amount of earnings before interest depreciation and amortization - I wouldn't worry about taxes. I googled Penney and I see a half dozen articles about how it's dead. Not with Simon. Plus, when a store goes out of business, the new store gets a higher lease. If he were doing badly wouldn't they be cut? Even after today's nice move the stock trades at a 30% discount to his historic record.
Okay, you say, what's the next one that's going to be wrongly priced? I have it: on Thursday Federal Realty (FRT) reports. Just as Simon has the best malls, Federal's Don Wood has the best shopping centers. He has reinvented them for touchless. He has turned mixed use - apartments, office buildings - into an art and a science. His restaurants are coming out of winter. On his last conference call Don gave this impassioned plea about why he didn't slash his distribution. He didn't need to. The analysts were harsh, unforgiving as if this man was just some sort of hopeless optimist swimming against a riptide waving his arm at the lifeguard saying "hey, I am not in trouble... Man drowns saving dividend."
I think Federal will be up there in the running for what we will do when the opening comes because I am looking at the numbers of how his tenants are doing, every bit as well as Simon's. The best part? He's last man standing in shopping centers like Simon's last man standing in malls.
But people won't get it. Because the market's been so wrong about things, maybe you have to use memory to recall how good Wood is. Buy some before and buy some after.
Remember this: the market's often wrong. You need memory to take advantage of what is often a multi-day decline. But is often just two days. We have a guest on tonight with a stock that has been blasted to smithereens off a great quarter: Take-Two (TTWO) . Last time Strauss Zelnick was on the stock dropped from $175 to $154. Next stop $213. And now this debacle. Remember this: Take Two?
It's a buy.