Schaeffer's Top Stock Picks for '25

How Contrarians Cashed In on Chipotle in 2017

CMG stock touched five-year lows in the fourth quarter

Jan 5, 2018 at 2:26 PM
facebook X logo linkedin


Subscribers who followed our Top Stocks for 2017 predictions racked up some big winners last year, as half of our 10 trades generated returns in excess of the S&P's 20% move. Among the short positions we recommended was Chipotle Mexican Grill, Inc. (NYSE:CMG), which wound up losing 23.4% after our bearish recommendation. Here's a closer look at what initially drew us to CMG stock for a short trade, and how the pick panned out.

When we recommended the short position at the end of 2016, Chipotle stock had given up roughly half its value since peaking in mid-2015, and was struggling to recover from the burrito chain's initial string of foodborne illnesses. Short sellers were piling on, and had quadrupled their CMG positions since November 2015. However, most analysts maintained "buy" ratings, leaving the stock vulnerable to downgrades, and options buyers were call-heavy -- suggesting the bearish bandwagon was far from crowded.

Chipotle stock burst higher to start the second quarter, with help from some optimistic chatter out of CNBC's Jim Cramer and a well-received earnings report. However, after running into a round-number wall around the $500 level in mid-May, it was all downhill for CMG shares. Concerns about rising marketing costs in late June eventually sent the stock back down to earth, and back below its 200-day moving average.

Re-emerging concerns about health safety sent CMG crumbling further in late July, after a Chipotle customer tested positive for norovirus, and video showed rats inside a Texas restaurant wall. In October, meanwhile, the stock suffered a massive bear gap to five-year lows after disappointing earnings. News of the restaurant's CEO search helped the shares recover some of those losses in late November, but CMG ultimately struggled beneath the $320 level -- where it was trading before the earnings gap.

In conclusion, Chipotle stock ended 2017 with a loss of more than 20%, marking its third straight year of a loss that steep. As analysts changed their tune on CMG, and as optimism among options traders unwound, the selling pressure on the beleaguered shares intensified, resulting in a big win for our short position.

chipotle stock chart 2017

 
 

Which of These SUB-$5 Stocks Could 26x From Here? (AD)

He called a rare 11x on Tesla…

Then he called a 26x on Workhorse…

Then an even rarer 35x on Nio Inc…

Now Tim Bohen says these 5 tiny “America First” stocks are next up in 2025.

They’re trading for less than $5 right now.

But thanks to Elon & Trump’s new alliance…

They could be off to the races in Trump’s first 100 days.

And right now for a limited time…

You can get the names & tickers for just $1 here. (AD)

10 Stock Picks FREE
 
 

Featured Articles from Trusted Partners:

🚀 One Stock Pick Could Change Everything in 2025
What if one stock pick could define your success next year? Get 10 expert-vetted stocks set for 2025—plus 5 bonus picks to watch now. Get the Report →

🆕 New Options Need New Trading Strategies
Zero-DTE options are the newest (and hottest) options to trade.  Professional traders have rushed into the market and are making a mint.  Don’t get left behind - learn all about these options, how to trade them, market setups to profit from, plus much more. Download now →

👀 Revealed: 3 Defensive Stocks for Your Portfolio
Worried about the market? This free report reveals 3 under-the-radar defensive stocks for uncertain times in any kind of economy.

 

 
 

FREE Report Download

 

Follow us on X, Follow us on Twitter