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E. Coli Scare: Why Costco Wholesale Corporation's Stock Has Been Less Affected Than Chipotle's

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Two of my favorite public companies have been touched by an E. coli contamination issue over the past few weeks. While I'm sure both will emerge unscathed in the long term, the contamination did have a material effect on Chipotle Mexican Grill 's short-term share price. While the stock had already been well off its all-time highs, since the first news report about E. coli on Nov. 1, the stock has continued to get pummeled.

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In contrast, Costco Wholesale , which was linked to E. coli infections from chicken salad it sold, continues to trade right around its all-time high. A few weeks after the first report linking Costco with E. coli, the FDA concluded that there was no E. coli found in salad samples in a few of the affected states. While the FDA is continuing to investigate, it appears as though investor faith in Costco has so far been justified.

I find the specifics of these E. coli outbreaks to be far less interesting than what the investor response has been. What does this say about Costco? What company strengths can be gleaned from this situation?

Long history of fair dealing

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As investors, it's important to not get caught up in short-term histrionics. Chipotle may make less money over the next quarter or two or three because of fear and temporary store closings. Five or 10 years from now, this will be yet another blip on the radar for the business. The earnings should recover back to a trend line that reflects the overall quality of the business and not a few months in 2015. Costco has earned the benefit of the doubt from investors in part because of its tremendous nearly 30-year run as a public company. Chipotle is on a similar trajectory, and I look forward to holding shares in both of these businesses for the next 30 years or more.

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The article E. Coli Scare: Why Costco Wholesale Corporation's Stock Has Been Less Affected Than Chipotle's originally appeared on Fool.com.

James Sullivan owns shares of Chipotle Mexican Grill and Costco Wholesale. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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