Buy Google, Microsoft and Verizon, Sell Chipotle


As far as the cloud is concerned, Verizon, with its recent acquisition of Terremark, offers global enterprise-class IT as well as security services by combining advanced IT infrastructure with world-class provisioning and automation capabilities -- one that is reliable and able to scale based on the enterprise needs. It offers these services regardless of whether or not the company is in the midst of an expansion or simply trying to do more with less.

The company makes it easy to extend IT infrastructure into Verizon's cloud services. So from an investment standpoint investors have to be pleased that the company is still investing in its own network and realizing that in order to remain dominant it cannot afford to rest on its laurels.

What's more, the company's earnings per share of 93 cents continue to outperform both AT&T(T) as well as Sprint(S) which generates 69 cents and negative $1.11 respectively.

Even more noteworthy is that fact that when comparing Verizon's operating metrics and focusing on areas such as return on average assets and return on average equity, its performance far exceeds that of its peers by a significant margin.

Furthermore, its beta value of 0.51 continues to be one of the lowest within the entire sector, making it one of the top performers when assessing risk/reward ratios. For these reasons, Verizon should be added at current levels and should be under heavy accumulation at any signs of weakness.

Reason To Sell Chipotle

As much as I love eating at Chipotle, its stock price has never really made sense to me. I've never believed in companies that are priced for perfection as it appears to be.

In examining Chipotle, I have realized that it has to continue to execute flawlessly in order to maintain its lofty valuation. While it has done a remarkable job so far at doing just that, one slipup can send shares spiraling down to more sensible levels.

As the company is heading into its earnings announcement, I think the cautious play would be to lock in profits if you are currently in the money. However, I will admit that may also be a risk in of itself.

The company reported an exceptional first quarter and delivered a performance where revenue of $641 million beat the consensus of $631 million and its comp increase of 12.7% exceeded estimates of 10.2%.

The question is, can the company deliver another double-digit comp in light of some recent economic challenges?

There's a decent chance that it will. However, that does not change my view of the fact that its valuation is significantly higher than other food and beverage companies such as McDonald's(MCD) and Starbucks(SBUX) .

With the stock trading at just under $400 with a price-to-earnings multiple of 35, more than doubling McDonald's, I would consider selling shares ahead of its earnings report and look for a re-entry under $390 and possible $385.

Bottom Line

Earnings season can be both an exciting time as well as one that brings a lot of anxiety for companies as well as investors. It's called the reporting period for more than one reason as companies are essentially sharing their quarterly report cards - where getting a passing or failing grade often depends on the expectations that were set.