Whether it comes down to valuation concerns, risk exposure, changes in strategy, or any other reason, there will be times when investors ought to consider selling all or part of their shareholding in a stock.
Chipotle Mexican Grill
What it does: Chipotle Mexican Grill is a restaurant chain serving Mexican-inspired cuisine, including burritos, tacos, and salads.
By Ben McPoland. I recently offloaded my shares of Chipotle Mexican Grill (NYSE: CMG). The restaurant stock has delivered some tasty outperformance for investors. As I write, it’s up 352% over five years.
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The company’s focus on using fresh ingredients sourced from sustainable suppliers continues to be a huge hit with consumers. In Q1, it reported revenue and diluted earnings per share growth of 14.1% and 23.9%, respectively.
So why did I sell?
Two reasons, really. One is the valuation is sky-high, with the stock trading at 69 times earnings. That’s much higher than the US market average, which is high itself.
Second, I want to add to my position in Pershing Square Holdings, the FTSE 100 investment trust associated with hedge fund legend Bill Ackman.
The fund has a large holding in Chipotle stock, which allows me to stay invested (albeit indirectly). Also, Pershing shares are trading at a 26% discount to net asset value.
Basically then, I thought I’d take my gains from an overvalued stock to invest in one that looks to be significantly undervalued.
Ben McPoland owns shares of Pershing Square Holdings.
Kraft Heinz
What it does: Kraft Heinz is a packaged food manufacturer. Its largest shareholder is Warren Buffett’s Berkshire Hathaway.
By Stephen Wright. I’ve recently sold my investment in Kraft Heinz (NASDAQ:KHC). I don’t see anything wrong with the business, but I found an opportunity that looked better to me.
The stock has a 4.4% dividend yield. Adjusting for withholding taxes, this amounts to a 3.74% return for UK investors (before foreign exchange fluctuations).
The company has been improving its balance sheet over the last five years and is now in a much better financial position. But I think there are better stocks to own right now.
I’ve used the cash I had invested in Kraft Heinz to buy shares in Games Workshop. I think the company’s lower capital requirements give it better protection against inflation.
On top of that, I think the FTSE 250 firm might be a better source of passive income over time. That’s why I’ve made the change to my portfolio.
Stephen Wright owns shares in Games Workshop.
Vodafone
What it does: Supplier of mobile telecommunication services to individual and business customers in Europe and abroad.
By Mark David Hartley. I recently sold my Vodafone (LSE:VOD) shares after months of losses. The stock is down by almost 30% in the past 12 months and I don’t see a recovery on the horizon. Until recently, I considered the investment profitable due to the high 10% dividend yield but those dreams have been dashed. From next year, the dividend yield will be slashed in half, killing one of the stock’s key value propositions.
The cut is aimed at turning the company’s fortunes around and it may well work. If Vodafone starts funnelling that extra cash into its operations, the share price could recover. After all, net income increased significantly in 2023, so it’s doing something right. If I see evidence of a recovery, I might just reinvest – but I don’t expect much for at least a year. In the meantime, I’d rather invest that cash into a more profitable venture.
Mark Hartley does not own shares in Vodafone.
