Coffee drinkers don’t care about market corrections. Perhaps that’s why Starbucks (SBUX) has come through the worst market correction in a decade not only unscathed, but in a better position (+10%) than it was when the downslide started in October, suggests Chris Preston, vice-president of content at Cabot Wealth Network.
For a stock to not just tread water but thrive over the last three months bodes well for its prospects as the market recovers. And that’s why Starbucks stock looks so attractive right now.
A big fiscal fourth-quarter earnings report in early November sent the stock gapping up from $58 to $68 in a week thanks to much-better-than-expected same-store sales, spurred in part by the recently introduced late-afternoon “happy hour” deals. While it has since pulled back to as low as $60, it remains comfortably above its 200-day moving average.
Where does the stock go from here? It’s already recovered nicely from its early-December pullback, and looks buyable below month-long resistance at $67. Any push above that level, especially if the market offers a tailwind instead of a headwind, and the stock could zoom past record highs.
Beyond that, the fundamentals look good — the stock trades at a reasonable price-to-earnings ratio of 20 even after the recent run-up, and analysts anticipate 9.5% EPS growth and 5.6% sales growth in 2019.
Add in the positives in the chart, with both moving averages on the rise since late August, and there’s a lot to like about Starbucks heading into the new year. Starbucks might be just the wake-up call your portfolio needs after a three-month slumber!
