Hungry?

It has been a while since my last post, so let me throw out two ideas for everyone to chew on.

Chipotle

I like to eat.

I like to eat a lot, and I love spicy food, and I love a good investment, so when I read McDonalds was going to spin off part of Chipotle in an IPO early next year, I was excited.

I have been a huge Chipotle fan since they opened a restaurant in Lawrence in 1998. When I moved back to Kansas City in 2001 Chipotle became a lunch time favorite, and I wasn't alone the two stores in Overland Park had lines out the door every day. Despite the fact that Chipotle has opened two more stores, there is still a long line at lunch and dinner, every single day.

A couple of years ago I got interested in buying a Chipotle franchise, the response was that they were not even taking indications of interest from new franchisees, they already had a list that was just too long.

Today Chipotle has 400 stores, according to Bloomberg, last year sales were up 34% to $430 million. The chain is growing rapidly and has a lot of growing to do before it is done. Chipotle is run by McDonalds, and if anyone knows how to efficiently run a restaurant, it is McDonalds.

McDonalds hasn't said how much of Chipotle they are going to offer in the IPO, and I'm not sure how the franchisee / Chipotle split works, that being said the Chain has revenue of $430 million and McDonalds says the IPO will be in the $600 to $800 million range, that is a big range, but this deal will merit some interest as more details come out.

Wal-Mart

Okay, before people start to think this should be "Burger's IPOs and Politics" let me throw out a value idea that you could buy today. Wal-Mart.

The chart above is Wal-Mart's Total Enterprise Value to EBITDA ratio, and it is way down from its peak. The reason it is down? Wal-Mart keeps growing earnings while its share price continues to drop. Wal-Mart shares are down 17% this year alone.

Everyone is worried about gas prices, everyone is worried about what this Christmas is going to be like, I have no idea what will happen to the American consumer over the next year (although I doubt it will be good), but I also have a feeling that Wal-Mart will be in business in a year, and in ten years.

Wal-Mart is now the nations largest grocery chain. It is also the company importing price deflation from China. Wal-Mart has built an empire around its incredible supply chain. The company is so efficient that it sells most of its goods before it has to pay suppliers for them. Wal-Mart is the company bringing the benefits of low cost labor to the American consumer. Oh, and Wal-Mart also sells more of America's best brands than anyone else.

While you might not think that discount retail and grocery are the most profitable business, but Wal-Mart earned a 9.44% ROA and a 23.59% ROE. The company is continuing to expand, including the beginnings of an impressive move into China.

There are a lot of great companies that seem to be moving into the range where you can feel comfortable buying them (MSFT and PFE are two other notable stocks) and Wal-Mart seems to be one of them.

Timothy Burger
timothyb(at)timothyburger.com