Chipotle Falls and Whole Foods Jumps as Stocks Rise

By Demitrios

Stocks added to yesterday's afternoon jump by tacking on near 1% gains in today's trading. The Dow Jones Industrial Average rose 166 points, or 0.96%. The S&P 500 gained 18 points, or 0.88%. The S&P 500 is now just 1% away from positive territory on the year, while the Dow is lower by just 2%, so far.

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^DJI data by YCharts

The government's final estimate of third-quarter GDP growth today showed that the economy ticked up at a 2% annual rate, compared to the 2.1% rate it had calculated last month (and the 1.5% advance estimate it first published). Sure, 2% isn't a pace that signifies robust gains, but it still points to continued steady improvement in an economy that's been growing by roughly 2% a year since the recovery began in 2009:

As for individual stocks, Chipotle shares took another bacteria-related hit while Whole Foods gained 6% to add to its strong three-month rally.

Chipotle's new downgradesFast-casual restaurant Chipotle was the worst percentage-point loser on the S&P 500. The 5% slump came courtesy of a few fresh E. coli-related Wall Street downgrades. An analyst at JP Morgan cut the stock to a hold rating while lowering his price target from $630 per share to $555 per share. With regulators tracking multiple E. coli bacteria outbreak cases, consumers have "reason to pause when choosing Chipotle over" rival fast-food operators, the analyst warned.

Image source: Chipotle.

Separately, investment firm Baird took a hatchet to its fourth-quarter and full-year 2016 profit estimates. While stating that it believes Chipotle's business will ultimately rebound and reward "patient investors," Baird isn't sounding especially patient. "Lack of visibility related to the timing/trajectory of the recovery prevents us from taking a more constructive near-term stance on the stock," the company said.

Yet Chipotle is tackling the E. coli issue head on. It closed and sanitized all the affected -- and potentially affected -- restaurants and has run 2,500 tests on food, equipment, and restaurant surfaces. The chain is also implementing new procurement and handling procedures aimed at making it a leader in food safety standards. Those moves are as good as investors can expect from the company, even if they likely won't avoid an expected double-digit sales decrease for Chipotle in the fourth quarter.

Whole Foods' sleepy rally Meanwhile, Whole Foods' 5% jump made it one of the best performers in the market today. The organic food supermarket chain's stock is now up 20% since hitting its 52-week low in late November.

Image source: Whole Foods.

Of course, the stock is still down by nearly one-third this year -- on top of a decline in 2014. Whole Foods has been hurt by rising competition from retailers like Wal-Martand Kroger, which operate on much lower profit margins. In fact, according to Whole Foods CEO John Mackey, purchase points for organic foods have increased by 70,000 over the last three years.

While it's good news for the industry that natural and organic groceries are becoming more mainstream, the shift represents a serious challenge to Whole Foods' high-end business model. Mackey and his executive team plan to meet the challenge with help from a new, lower cost store concept set to break ground in 2016. In the meantime, Wall Street is bracing for another quarter of negative comps out of the supermarket chain: Fourth-quarter sales should shrink by 2% after falling by less than 1% last quarter.

The article Chipotle Falls and Whole Foods Jumps as Stocks Rise originally appeared on

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos owns shares of Chipotle Mexican Grill and Whole Foods Market. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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