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Fb & Cmg

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Submitted By ajiteshk
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FB & CMG
I am writing about what are considered to be 2 extremely lucrative stock buys. Facebook has stumped most analysts with its stupendous growth since its IPO in May 2012. Chipotle on the other hand is a stock which has also shown remarkable growth since its IPO in 2006, mainly due to its continuously increasing revenues and earnings.

Facebook
Facebook sold at $38 at the time of its IPO less than a year ago. Today the stock is selling at close to $68. On the outset FB looks like a stock that can do no wrong, but you need to keep in mind that stock did drop to a low of below $20 during September 2012. So it’s no surprise that FB is indeed volatile and has a beta of 2.01.
Recently, FB made the huge acquisition of WhatsApp for a deal worth $19 billion, of which $16 billion is guaranteed in cash and stock. This is monetarily the biggest acquisition in the company’s history. However, there are concerns over various aspects of this deal. Firstly, WhatsApp isn’t widely used in countries like the USA, where mobile carriers are able to offer free messaging services to their customers. WhatsApp is most widely used in India, Brazil and Singapore. Secondly, WhatsApp is a service basically promises its users that it will not use any part of their data in suggesting ads. It is an ad-free platform. WhatsApp founder Jan Koum promised his customers that he will never sell their personal information to anyone. Now that he is on Facebook’s board of directors, all that may change. The deal threatens to drive away those users of WhatsApp who don’t use Facebook, and are worried that their data will eventually land into Facebook’s hands. Thus the question arises, how exactly Facebook intends to get value for their $16 billion? This is exactly why a leading firm like Argus has downgraded its verdict on FB from Buy to Hold, and removed its price target for the stock.
However, the fact is that FB continues to grow at a rate which far exceeds most analyst’s expectations of the stock. FB has grown almost 28% through the first three months of the year and has most analysts unanimously supporting the stock. Its advertising revenues are increasing, with advertisers spending more especially since it’s believed that Facebook has restricted the reach of advertiser’s posts. It’s also introducing premium video ads. Also, WhatsApp’s $1 annual charge will also add to revenues. So while Facebook’s forms of monetization continue to be controversial, its ever increasing user base and revenues are proof that it remains to be a very profitable stock to invest in.

Chipotle Mexican Grill
Chipotle Mexican Grill is a chain of restaurants which is utilizing its simplicity to be profitable. Chipotle has a small menu with no promotional items on it, which helps prevent wastage of money. Their small selection of ingredients does not however compromise on the quality of the food they serve, which is so good that their customer-base is ever increasing. Clearly the concept has worked, and this has resulted in increased revenues year after year.
CMG opened restaurants at 183 new locations all over the country last year. It is also working on overseas expansion, by setting up shop in Europe and Canada. Their ShopHouse and Pizzeria Locale restaurant concepts also have huge potential. It has also introduced a new tofu menu for vegans. It would only be fair to say that Chipotle has huge future growth opportunities.
Chipotle also stands out when compared to its fellow competitors like Panera Bread and Potbelly. While both Panera Bread and Potbelly saw its quarterly revenues fall due to the harsh winter, Chipotle still managed to register a 20.7% quarterly revenue growth, a 29.8% quarterly earnings growth and a 9.3% growth in comparable sales. Over the past year, Chipotle’s stock has accelerated by almost 75%.
Another interesting fact is that Chipotle is able to counter inflationary costs on ingredients and packaging by passing them on directly to customers. And yet, there is no decline in sales. This, coupled with solid revenue growth, huge potential for future growth opportunities and a relatively low volatility with a beta of 0.79, means that CMG stock is a strong buy in this niche sector of investing.

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