Five Unstoppable Stocks and What Might Stop Them
by Todd Shriber
Some stocks just don’t know how to go down. Their charts are things of beauty, marked by series of higher highs and long-running uptrend lines. They come from a variety of sectors, and being short these names isn’t the brightest of ideas.
Often times these are the stocks of companies that produce simple goods or services, not the cure for cancer or some other complex fare. They’re often highlighted by rich valuations that seem to go ignored for long stretches of time.
Yet every good run eventually comes to an end at some point, or at least pauses. The trick is pinpointing when. With that, here’s the Trader Daily list of five unstoppable stocks and what it might take to stop them. In the essence of caution, please note that these are not buy and sell recommendations, nor advice of any kind, not are we saying these scenarios will actually play out the way we have described.
1) Apple (AAPL):
Less than 10 years ago, Apple traded for less than $20. It would now need to split 18-for-1 to see $20 again and don’t bet on that happening. Apple’s dominance in the consumer electronics business is widely documented, and despite a lofty price tag on the shares, the stock actually isn’t expensive by traditional metrics (about 14x forward price to earnings and a price/earnings-to-growth ratio of 1).
So what could derail this juggernaut? Perhaps the only answer is the health of co-founder and CEO Steve Jobs. Even on leave, Jobs is still running the show from his home, according to The Wall Street Journal, but if his health dramatically worsened, and Apple couldn’t keep it quiet, that would be a near-term issue for the stock.
2) Chipotle Mexican Grill (CMG):
This McDonald’s (MCD) spin-off has become a star in its own right, surging more than 150% in the past year and really breaking out after last week’s earnings update. Just look at the price action in the span of a week on Financial Visualizations. What is the kryptonite for a stock in this business on this kind of run, trading at 47 times earnings?
Why, it’s commodities prices. Philip Davis notes on Seeking Alpha that Chipotle, by its own admission, is staring at rising costs over the next several quarters. With livestock and vegetable prices expected to rise this year, Chipotle will have to sell a lot more burritos to sustain its current share price and valuation.
3) Netflix (NFLX):
Neither a price to earnings of over 81 nor Whitney Tilson have been able to stop Netflix as the stock has nearly quadrupled in the past year, leaving many to wonder what it would take to knock this stock down. Probably an act of a God or some type of internal scandal, and we’re not betting on either. Or the market could grow suspect of the valuation, certainly a reasonable reaction at this point. But when is it going to happen?
4) OpenTable (OPEN)
Perhaps the next member of the Nasdaq triple-digit club, OpenTable has taken a simple idea, online restaurant reservations, and served it up. Now we have a stock trading at 160x earnings and almost 56x forward earnings. OpenTable is forecasting five-year growth of 54%, according to The Motley Fool, and any negative adjustment to that guidance would make the stock vulnerable to a pullback. Negative consumer sentiment would also hurt, but with the economy improving, that’s not a near-term concern.
5) Panera Bread (PNRA)
Panera is another restaurant name that enjoyed a recent post-earnings gap higher after pleasing investors with some appetizing guidance. Panera’s commodities costs, at least 80% of them, are locked in for the year, according to The Wall Street Journal, and the company isn’t shy about passing costs along to consumers. If food inflation doesn’t stop this stock, it’s hard to figure out what will.
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