Jonathan Hoenig: In just 12 years, Chipotle has grown from a single store to over 500 nationwide. Corporate parent McDonald's, which acquired the company in 1998, has reaped a windfall. The stock is up some 30% since its February IPO. Those who’ve tasted the restaurant’s food aren’t surprised by their success. The menu of burritos and tacos is affordable, freshly prepared and downright delicious.
And although I’m a sucker for anything smothered in sour cream, right now not be the best time to take a bite of the stock. Although Chipotle’s food is tasty, restaurant stocks have been trashed in recent weeks. Names like Cosi (COSI), PF Chang’s China Bistro (PFCB), Cheesecake Factory (CAKE) and Steak 'n Shake have been shredded worse than fresh lettuce on refried beans.
Moreover, McDonalds recently announced plans to sell its remaining stake in the company by October, which could further pressure the stock as millions of shares hit the market. Right now, this might be one that’s better to eat than to buy.
Question: Are there any particular types of stocks that I should keep an eye on with all the violence in the Mideast?
Jonathan Hoenig: Let’s start with the most obvious: oil. Tension in the Middle East generally pushes energy prices higher, which has benefited the large oil companies. Exxon Mobil (XOM) and Chevron (CVX) are both at all-time highs, and other names like Conocophillips (COP), BP Plc (BP) and Petro-Canada (PCZ) aren’t far behind.
And despite the violence, the Israeli market has held up quite well. US investors wishing to invest in the country might consider the AMIDEX 35 Israel Fund (AMIDEX), which holds Israeli-based firms such as Teva Pharmaceuticals, Bank Hapoalim and Check Point Software. Another option in the region is the First Israel Fund (ISL), a closed-end fund that trades on the American Stock Exchange. Pharmaceuticals, banks and insurance are all major holdings, and the fund currently trades at a 12% discount to its underlying net-asset-value. My firm has no position in either security at this time.
Question: What's the deal with Apple (AAPL) stock? I heard it's plateaued in the past few months. Is this true, and should I dump my stock?
Jonathan Hoenig: The best indicator of a stock is the stock itself. And if you own Apple, you need to be watching it, which obviously hasn’t been the case for you in recent months. Apple’s stock hasn’t just slowed — it's downright plummeted, having dropped 41% this year before strong earnings (and a bullish article in Barron’s) sparked a 25% rally.
Apple is suffering over fears about a slowdown in its iPod business, as well as general malaise within tech stocks. Dell (DELL) has been quite weak, as has Gateway (GTW) and the Nasdaq, which has now falling over 6% year-to-date.
Should you sell? One reason to consider a stock is on those few occasions when an investment has grown to become a dominant part of your portfolio — say 10% to 15% percent. Given Apple’s recently decline, I’d venture to say that’s not the scenario in your case.
Given the stock’s weakness, I’d certainly not put new money to work in Apple right now. I’d also recommend you stagger some stop-loss orders — predetermined levels below a stock's current price at which the stock is automatically sold — below the market price. With Apple at $63, for example, you might opt to sell a third of the position at $60, another third at $55 and the final chunk at $50. This approach allows you to reduce my risk if the stock weakens, yet remain in the trade should the bullish trend continue.
Question: I'm 27 years old, and I want to be my own boss within five years by opening a fast food franchise. Where should I start my research on how to go about doing this?
Jonathan Hoenig: What is it about the smell of greasy hamburgers, never-ending turnover, pushy health inspectors and intense price competition that you find so attractive? In all seriousness, opening up a franchise is both a time and capital-intensive endeavor. My first suggestion would be to either work or intern for someone who already runs the type of business you are interested in opening. It might turn out the lifestyle isn’t as attractive as you might think.
Also, because going into any business requires a wide margin of safety, you’ll want to have at least 2 years worth of living expenses set aside while you’re getting the restaurant running. I’d recommend opening up a money market fund as a secure place to store your cash while you are planning your operation. Vanguard’s Money Market Reserve (VMMXX) is now yielding north of 5%.
Question: Everyone works out at the gym these days — and they're all wearing Nike Shox! Does the Nike (NKE) stock have any more room to grow?
Jonathan Hoenig: Nike’s competitors are just as aggressive as the athletes who wear their footwear, yet the company has been able to remain relevant and cutting edge for the better part the last 40 years. Just take a spin on the company’s website, which lets you customize your own pair of shoes right down to the color of the trademark "Swoosh."
Of course, a company and its stock are two different things. Because it's the stock that we trade, price action is what should drive the decision-making process to buy, sell or hold. At current levels, I’d consider Nike a “hold”. The stock has been channeling between $80 and $90 for months — I’d want to see it break out above the $90 level before putting new money to work. Besides, with the market so volatile, I rarely get to the gym much these days. Cigarette maker Altria (MO) and Budweiser (BUD) might be more timely buys.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC and is a markets columnist for Smartmoney.com. He appears regularly on FNC's business program Cashin' In. At the time of writing, Hoenig's fund held no positions in any of the securities mentioned.