Chipotle 'pivoted just the right way' into digital during the pandemic: Analyst

Laffer Tengler Investments CEO and CIO Nancy Tengler joins Yahoo Finance Live to discuss stocks to buy, including Starbucks, Chipotle, and Tesla, and stocks to avoid, including Disney and CVS.

Video transcript

SEANA SMITH: Fears of a recession and looming debt default are spooking investors. And as uncertainty remains, those looking to put money to work are trying to figure out exactly what to buy and what they should avoid. So let's break it all down with Nancy Tengler, Laffer Tengler Investments CEO and Chief Investment Officer.

Nancy, it's great to have you here. So you have some stocks for us to buy, some stocks that you're advising to hold-- to avoid at this point. Let's start with one of your buys, Starbucks. What do you like about it?

NANCY TENGLER: Yeah, so sometimes, and this is important for your viewers to know, you can get out of a stock for all the right reasons. And ours was there was no management succession. Howard Schultz coming back for the third time, labor problems, China-- they doubled down on China.

And we just felt like it was something we'd owned for a very long time. So we got out and pretty much went straight up from there. And so we waited until Laxman, who's the new CEO, reported earnings and gave muted guidance and so the stock sold off.

And I just think he did that because that would be a smart thing to do as the new CEO-- not raise guidance precipitously, just wait and then surprise to the upside. So they've got a lot of levers to pull. The labor thing seems to be OK. China's reopened, strong dividend growth. So we stepped back in and we'll continue to add on volatility.

AKIKO FUJITA: And, Nancy, Starbucks one name that you like. But the other one that I thought was kind of interesting is your take on Disney here. And I'm curious what this is, whether it's about the valuation of the stock or about the strategy. Because we have seen a lot of restructuring happening since Bob Iger came back in.

NANCY TENGLER: Yeah. And I think, Akiko, the fact that he had to come back is a problem. I think there's a lack of shared vision in the company. He was behind the scenes putting pressure on Chapek with the board. And I think that makes me worried about the future of the company.

They are in three disparate businesses. One seems to be working at all times. But they're not getting credit for that. So great company, but not a great stock.

And then the last thing I'll say is you're not even getting paid to wait, because the dividend was suspended and there's no talk of even adding it back in. So we're on the sidelines.

SEANA SMITH: When it comes to another name that you do like, though, Chipotle. And this kind of stuck out to me because we have already seen a massive surge in the stock, even just since the start of the year. Why do you think they're positioned well in this environment?

NANCY TENGLER: So one of our investing , themes Seana, is old economy companies that are embracing the digital revolution. And Chipotle pivoted just the right way during COVID. They get $1 million in annual sales from each store on just digital orders alone.

So it has a pretty, I'd say, a full valuation. We were buying it during the pandemic, so our acquisition cost was about $500. But it's just-- it's a growth stock that's always had a lofty valuation. They've got pricing power and excellent management.

AKIKO FUJITA: And, Nancy, you mentioned pricing power-- I am curious about that one, because the digital strategy and their success has long been documented. They've also been pretty out ahead in terms of those price hikes. And they've sort of been able to play both sides.

Consumers still coming along, they are still coming through the stores even at a higher price point.

NANCY TENGLER: Yeah.

SEANA SMITH: What is it you think about Chipotle that has allowed them to do that? And is that kind of a strategy that you're likely to see or a strategy that you think other companies have been able to find success in?

NANCY TENGLER: Yeah. I think it's brand. I think that's really what it comes down to I mean, the food is good, of course. They're adding ChipotLanes, which makes it more convenient. But it all comes back down to brand.

And you could make the same argument about Starbucks. How much are you going to pay-- how much are you going to be willing to pay for that iced latte? I mean, mine the other day was $7.25. And I bought it.

So I think that's some of it. Now, that doesn't mean growth isn't going to slow if the consumer gets softer. But eating out, and at that price point, I mean, I'd actually rather pay that much for a burrito than I would for a cup of coffee. So I think they just have a lot of the right elements. And it's clean food, people perceive. And it's good.

SEANA SMITH: Nancy, speaking of pricing, a little bit different, though-- we have certainly seen the pricing-- a number of pricing variations when it comes to Tesla, I know one of the plays that you have liked recently. We just heard from Elon Musk yesterday at the annual shareholder meeting. What do you think about how Tesla is positioned now? Because he did warn that the next several months could be a bit challenging here for the company.

NANCY TENGLER: So Tesla and Elon right now remind me of Apple when Tim Cook took over. So there was a transition going on in the company. People were underestimating him, for sure-- Tim Cook, that is. And they were worried that it was just a handset company. But it was really about services.

And we started buying the stock in 2012 because we liked the services ecosystem story. I think Tesla has the same thing going on and people are overlooking that. I mean, for example, they have a $300 million insurance premium business that no one talks about. So the ecosystem-- they're cutting pricing to draw people into the ecosystem, and that has sustainable earnings growth power in the future.

I also think it's kind of interesting that people are bemoaning the decline in their margins. It's still four times or five times Ford's, and they forced Ford to cut EV prices twice this year. So I think him sort of experimenting with advertising-- I don't think that's a sign of weakness. I just think it's smart business.

AKIKO FUJITA: So interesting, Nancy, I mean, it sounds like you think there is a whole other lever here to be unlocked when it comes to Tesla. How big of a concern is that distraction part of the conversation? I mean, we know that Twitter now has a new CEO, but Elon Musk has made it pretty clear, I'm still going to try to run both sides.

NANCY TENGLER: Yeah. And I'm going to say whatever I want. So we actually picked up the stock in January. We'd owned it years ago, kind of underestimated him when he was going through all the problems with management, didn't have an independent board of directors. And remember, he was on the Joe Rogan show-- I don't need to finish that sentence.

So we felt like at that point, it was kind of gambling for our clients, because there was no management succession. Now, he's got one of the best CFOs in the country, I think. And he has hired, like, as everyone requested, he has hired a woman to take over the company, Twitter, that is.

And so for us, it just feels like he's marching at his own pace, as he always does. But I don't think the distraction factor is the same with him as it might be with other CEOs. And so we were beneficiaries of people selling the stock, and he selling the stock at the end of last year, because we picked it up in early January in the low 100s. So we're pretty happy with our investments so far.

SEANA SMITH: Yeah, and you should be given the returns that we've seen since the start of the year. Nancy Tengler, great to have you. Thanks so much.