in Markets and Mania / by TCT / on February 4, 2013 at 6:09 am /

So what’s next for this nonsensical market?

CNBC spent the last 6 months convincing us that investors are terrified of the so-called “fiscal cliff,” now we have a “cliff” resolution and pundits are already calling for a “rally.”

What?!

Stocks may go higher but don’t call it a rally, call it what it is — dangerous speculation. Truthfully, this market is overvalued, with a P/E above its historical average, there’s no “fear” the market priced in a resolution weeks ago.

If you’re investment sensibilities were formed, at all, by One Up on Wall Street, they have to be offended.

Peter Lynch Would Hate This Market

In his classic, Lynch famously said the one time to get bearish is when everyone wants to drive the market higher — there’s danger in euphoria.

With no fundamental reasoning, momentum chasers will drive any “rally,” so what happens if we get some debt ceiling panic, a “reverse January Effect”?

I’m Not Telling You to Take Your Ball and Go Home

But it’s time to stop paying attention to this market. Instead, switch your focus to quality companies, such as:

Chipotle (NYSE: CMG) is that rare company that has everything you’d want: great performance, a visionary entrepreneur in Steve Ells at the helm and still plenty of room to run in U.S. and overseas markets. Chipotle still isn’t even in many areas of the Southern U.S. let alone overseas, but unfortunately until recently there was no entry point. That all changed thanks to a Whale of a short by David Einhorn as the stock dropped nearly $200/share.

When that short call (and a so-so quarter) evoked a sell-off, I became more bullish on Chipotle than ever:

Nothing substantive about the underlying business has gone sour for the long term.

The short is based on one of the most ridiculous premises I’ve ever heard, the notion that somehow Taco Bells “Cantina menu” is going to steal market share from Chipotle.

To suggest such a thing is to suggest that you are shorting a company that you don’t understand on any level. What makes Chipotle great, the catalyst, is a shift in consumer preference to healthier living and eating. To suggest that Taco Bell, which is synonymous with “cheap and possibly inedible,” could compete in this space is ludicrous. Chipotle’s hard-core customer base doesn’t mind paying up for quality — the antithesis of Taco Bell.

Also, while the quarter may have only met expectations (gasp!) it’s worth noting that Chipotle’s EPS has risen 30% this year, well above the previous year. How short-sighted are those who think it’s slowing down?

Sure, high feed costs are a concern for margins, but is any restaurant better positioned than Chipotle (ROE of 24%) to handle them? In fact, if you’re worried about inflation I’d be as bold as to say that Chipotle’s brand is strong enough to be a “pricing power” play despite the fact that it’s a restaurant — its brand moat offsets a whole host of concerns.

Strong Brand + Expansion Potential + Price Pull-Back= A Stock Worth Holding Through a Crazy Market

Still worried about feed costs? I’ve got you covered. Go out and buy yourself some shares of Mosaic (NYSE: MOS) on the next pullback and get ready to hold it for the long haul.

Mosaic produces phosphate and potash, vital nutrients to grow crops in all types of harsh conditions. As a cyclical it currently finds itself in a period of weak near-term demand, lowering the price of fertilizer and putting a ceiling on earnings.

It’ll be stuck in neutral for a few quarters. Here’s why that’s great news:

The world cannot operate without Mosaic’s product; how many companies can say that?

This cyclical down period has created a reasonable stock price.

The world is experiencing increased droughts and flooding and is rapidly moving to 9 billion people, a huge catalyst for Mosaic. The world is getting hungrier and harder to feed, Mosaic is (partially) the remedy; if you’re a long-term investor, what else do you want?

If you’re short Chipotle because of margins then you must be long Mosaic — it makes no sense not to be.

Peter Lynch Would Hate This Market — That’s Why I’m Buying These Stocks

I always say, investing is like playing doctor you need to find out what will ail the world tomorrow and pick the stocks that will make it better I seriously need to trademark that.

Both of these stocks are where tomorrow will be. They don’t need this crazy market. Ironically, this crazy market has offered them both at a discount — lucky you.

I’m buying (CMG) and buying more (MOS) on every sell-off this year and I’m tuning out the noise. I’ll pay attention to the market again in 2014. Until then, let’s just watch high-quality stocks.

What’s a better prescription than that?