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2 Stocks to Watch Because the Market Overreacted

NEW YORK ( TheStreet) -- Whole Foods Market (WFM - Get Report) might be the most perfect stock in what is, by any measure, an imperfect market.

The stock just keeps on going up, with natural pullbacks -- basically buying opportunities -- here and there. But it's not just the trajectory of the stock that's incredible, it's the near-flawless execution of the business.

On Wednesday, Whole Foods announced that it beat EPS estimates, saw revenue rise by 14% year-over-year and posted same-store sales growth of 8.2% in the most recent quarter. Guidance comes in healthy and the company intends to continue full steam ahead with what is easily one of the best examples of footprint expansion in any area of retail.

The day before Whole Foods turned in a strong quarter, Panera Bread (PNRA) did the same. Starbucks (SBUX - Get Report) reports Thursday. While I don't think we absolutely need to see equally-as-impressive results from Starbucks to prove the following point, it would help.

Investors overreacted to Chipotle Mexican Grill's (CMG - Get Report) poor quarter. I cannot believe Chipotle's peers will continue to grow, yet its days of solid forward motion are over.

While I tend to agree with the caution TheStreet's Jim Cramer urged on his Mad Money television program Monday night, I'm not quite as down on the business.

Cramer's right, for the time being, CMG is a broken momentum stock. But, all it takes is one impressive earnings beat to regain investor faith. In other words, proceed with caution, but do not write off a company that plans to expand by about 160 locations in 2012. Chipotle has barely scratched the surface on international expansion as well as its Asian restaurant concept.

I concur with Cramer -- $270 looks like a good price for the stock. If you have the cash to support the trade selling a CMG September put somewhere in that $270 range on further weakness could make sense as a way to possibly establish a long position.

Zynga Meltdown

I'm not sure I have ever witnessed a meltdown as bad as the one Zynga (ZNGA - Get Report) turned in on Wednesday afternoon.

First, I have to give a guy I have not always agreed with some credit. Richard Greenfield of BTIG Media sounded -- and please pardon my French, but there's no better way to illustrate this -- pissed off when he asked Zynga CEO Mark Pincus several questions on the conference call.
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CMG $435.00 0.39%
SBUX $56.25 -0.25%
WFM $30.21 5.96%
ZNGA $2.52 9.60%
AAPL $93.24 -1.01%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

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