These 2 Blue Chips Took Massive Hits. Are Either Worth Picking Up?

With a big week of earnings just wrapped up, stock pickers might be feeling a bit of pain, even though the Nasdaq 100 is still just a hair shy of its all-time highs. Undoubtedly, it was a pretty choppy earnings season if you look underneath the hood, with the likes of Chipotle Mexican Grill (NASDAQ:CMG | CMG Price Prediction) crashing in response to a tough quarter while Microsoft (NASDAQ:MSFT) somehow disappointed despite posting some very strong quarterly results.

On the whole, the mega-cap tech earnings were pretty good, but you wouldn’t know it just by looking at the post-earnings reactions, especially when it comes to the Magnificent Seven companies that aren’t named Amazon (NASDAQ:AMZN). In any case, this piece will have a closer look at two quality blue-chip names that I view as unfairly sold off following quarterly results that did not warrant such punishment.

Chipotle Mexican Grill

Things have gone from bad to worse for shares of Chipotle Mexican Grill, which somehow found a way to implode further despite going into its quarter in a position of tremendous weakness. Simply put, the bar was low going into the quarter, but Chipotle still managed to stumble. And while I’m sure investors miss ex-CEO Brian Niccol, I still think the fast-casual play represents a great value now that the shares have taken a 52% haircut from peak levels. 

Also, a round of applause to Pershing Square Capital Management’s Bill Ackman, who has reduced his stake in Chipotle Mexican Grill steadily in recent quarters. Though time will tell what Ackman does next with the name, I do view the name as a fantastic value, especially for those who are still fans of the chain. Sure, so-called “slop bowls” may be falling out of favor, as consumers question the value they’re receiving for food items that certainly aren’t the cheapest in the world.

And while the consumer is being pressured, perhaps by enough to go to the value menu at the local unhealthy fast-food chain, I wouldn’t bet against Chipotle once consumer-facing pressures normalize, whenever that may be. Until then, bottom-fishing in the name could entail more pain as layoffs mount and high costs on just about everything remain, even if inflation were to go no higher from here.

With the Fed kicking off a rate-cutting cycle, though, I am concerned that prices could continue to increase, even as Fed chairman Jerome Powell remarks that job creation is pretty much at zero. Arguably, employment could sink further as AI-induced tech layoffs continue.

And rate cuts might not have much of an impact this time in sparking the labor market, as corporate America looks to follow in big tech’s lead with AI-driven cost cuts, which could entice investors. In the meantime, CMG stock seems like a rather untimely buy at 28 times trailing price-to-earnings (P/E). More palatable at these levels, but likely not as big a bargain as you think, given the more than 50% implosion in the shares.

Microsoft

Microsoft certainly didn’t take the biggest post-earnings plunge after earnings. However, the enterprise AI kingpin reported what I thought was a fantastic quarter that should have probably induced an upside move. Instead, shares marched lower after investors digested the results, ultimately ending in shares being down around 5% in the sessions that followed.

If I were to bet on how shares would react based on the solid quarter, I would have thought a 5% move in the green would have happened. In any case, that’s the unpredictable nature of the market. I think the negative reaction had more to do with the valuation and high expectations than anything else. Perhaps some shareholders were waiting for a lack of profound upside surprises to justify taking profits off the table in the AI winner, which now finds itself holding onto a 27% stake in OpenAI and an enviable Azure cloud deal.

With Microsoft now falling below the $4 trillion market cap mark, I think investors have a chance to buy the dip. It’s not a massive dip, with shares off close to 5% from all-time highs, but it’s nonetheless a decent entry point for an AI innovator that’s firing on all cylinders. Given the AI tailwinds under the hood and the stewardship of one of the best CEOs in tech, I must say I’m a fan of the risk/reward with shares going for 33.3 times forward P/E.