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Embrace Volatility: Buy Google and Chipotle, Sell AMD

Every time I walk into a Chipotle Mexican Grill (CMG) restaurant, I'm reminded of why the stock has doubled in value over the past the couple years. This is even though Chipotle has amassed several detractors, notably hedge-fund superstar David Einhorn, who famously predicted that Taco Bell would kill off the company.

As it stands, Chipotle is doing the killing, forcing rivals like Qdoba and Lime Fresh Mexican Grill to close locations. The company has built itself into leading fast-casual restaurant that's posting strong growth and above-average margins.

Despite Chipotle's recent successes, investors are anxious about holding the stock ahead of the company's first-quarter earnings report. But if Chipotle's 9% jump in same-store-sales serves as indication, there's no need to be unsettled. Management has its act together.

The Street will be looking for $2.85 in earnings per share on revenue of $873.6 million, which would represent 20% year-over-year revenue growth. What has kept the stock sizzling has been Chipotle's strong restaurant-level margins, which significantly outperforms that of both McDonald's (MCD) and Yum! Brands (YUM). And with the stock down 15% from its 52-week high, I see Chipotle as a strong buying opportunity.

Last on our list is Advanced Micro Devices (AMD), which has been in a perpetual recovery mode. The chip giant will report earnings Thursday. While I have always liked AMD's business, lately the story has been one step forward and two steps back. There are now questions about the company's strategy to fully embrace a gaming industry that has become unpredictable.

Thursday, the Street will be looking for earnings per share of $0.00 (not a typo) on revenue of $1.34 billion. While revenue is expected to jump more than 23%, it has yielded very little in terms of profits. I do realize that management continues its cost-cutting initiatives. But it's time for investors to reevaluate what they are paying for.

There have been no meaningful signs that AMD is in better shape today than it was a year ago. While the balance sheet does appear more attractive, AMD doesn't present the sort of competitive edge to suggest there will be long-term outperformance. That gross margins recently decreased sequentially to 34.8% was a perfect example.

With revenue expected to decrease sequentially by 16%, I have to rate this stock as a sell. Both Intel (INTC) and Nvidia (NVDA) are better buys at this point, given the faster pace of their turnarounds.

At the time of publication, the author did not have a position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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