How To Earn 8.6% Yield While Waiting to Buy CMG 30% Cheaper

At about $39.1 a share, Chipotle Mexican Grill (CMG) is trading about 34% below its 52W high.

Do you think CMG stock is a good long-term bet at current levels? What about at a 30% discount at about $27.5 per share? If you think that is a steal, and have some cash ready to go, here is a trade.

8.6% annualized yield at 30% margin of safety, by selling Put Options.

• Sell a long-dated Put option expiring 1/15/2027, with a strike price of $27.5
• Collect roughly $121 in premium per contract (each contract represents 100 shares)
• That’s about 4.6% annualized yield on the $2,750 you’re setting aside for the possibility of buying the stock
• This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 8.6%
• And you give yourself a chance to buy CMG stock at deep discounted price of $27.5

However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.

Possible Trade Outcomes: You Win Either Way

But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.

First, you want fundamentals to check out. For details, see Buy or Sell CMG Stock or check Chipotle Mexican Grill Investment Highlights

Second, you want to better understand competitive advantage and industry tailwinds. Below is what specifically gives us the conviction.

Why Hold CMG Stock Long-Term

Chipotle is a well-managed company with a strong brand and significant pricing power, operating in a growing industry. The company’s focus on fresh ingredients and a customizable menu resonates with health-conscious consumers, a long-term secular trend. Their strong financial position and consistent growth make them a desirable long-term holding.

Competitive Advantage

We classify CMG’s economic moat as WIDE, with the primary source being Pricing Power

• Chipotle successfully implemented multiple price increases in recent years to offset inflation, including a 6-7% increase in California, with no significant negative impact on customer traffic.
• Despite price hikes, Chipotle’s comparable restaurant sales and transaction growth have remained strong, indicating inelastic demand for their offerings.

See Chipotle Mexican Grill Full Analysis.

Industry Tailwind

The industry tailwind is STRONG, with CAGR projection of 10.4% (Source: Allied Market Research)

Secular Trend: Shift to Healthier and Convenient Food Options
Key Risks: Rising labor costs and supply chain disruptions are the primary threats to the industry.

Financial Guardrails

Cash Generation: Positive Free Cash Flow
Balance Sheet: Chipotle maintains a strong balance sheet with no net long-term debt, indicating a low risk of bankruptcy.

Not comfortable with options or stock-specific trades? PORTFOLIOS are even better.

Portfolios Are The Smarter Way To Invest

Individual stocks are unpredictable. A smart portfolio keeps you invested, limits downside shocks, and provides upside exposure

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.