Advice on Chipotle, Whole Foods and Other Suffering Stocks

Chipotle and Whole Foods shareholders are looking for more information on the stocks and insight into what they'll do.

Author:: Gregg Greenberg
Publish date:: May 11, 2016 3:09 PM EDT

Chipotle Mexican Grill (CMG) - Get Report shareholders will be looking to the embattled burrito-seller's board at its investor meeting Wednesday to learn how it plans recover from the food safety scare that has cost it a quarter of its market value in the past year.

They are better off looking elsewhere, said Alap Shah, CEO of Sentieo. Like the web and Twitter (TWTR) - Get Report . Twitter is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio.

"We looked at the data and especially around website traffic, we found there was a big surge with the coupons but after the coupons got used up over a three- or four-week period, activity dropped right back down to negative traffic levels," said Shah.

Based on those readings, Shah is advising his customers that future quarterly estimates are unlikely to be hit. He advised investors to be wary of the stock.

Shah founded Sentieo as a way to provide better earnings forecasts to buy-side firms by including web and social datasets like search volumes and Twitter mentions into its models.

Shah is also bearish on Whole Foods (WFM) , which has also seen its shares drop by over 28% in the past 12 months. He said Whole Foods is not only under attack from the likes of Walmart (WMT) - Get Report , Kroger (KR) - Get Report and Action Alerts PLUS holding Target (TGT) - Get Report moving into its natural food space, but also from high-end boxed food delivery services such as Blue Apron, HelloFresh and Plated.

"These boxes are lost trips for Whole Foods, and I think the market really is not processing how big an impact that can have on Whole Foods revenues," said Shah.

According to Shah, boxed food company revenues have risen to $1.5 billion in the past two and a half years. Assuming that around 25% of last year's growth, or $800 million in box company revenue, came out of Whole Foods, then you are talking about over $200 million lost in sales.

"In a downside scenario, WFM's needed price investments could impair margins at the same time tech steals more of the grocery trips of WFM's least price-sensitive customers. Not a pretty picture... no wonder management is focusing investors on the new lower-priced 365 by Whole Foods store format," said Shah in a Sentieo blog post.