Starbucks (SBUX): 2019 Top Picks' Mid-Year Update

07/10/2019 5:00 am EST


Chris Preston

Investment Analyst, Cabot Wealth Network

Chris Preston, editor of Cabot Wealth Daily, chose Starbucks (SBUX) as his favorite investment idea for 2019. The coffee play has since risen 30%. Here's his latest update.

When I recommended Starbucks at the beginning of the year, it was partly on the premise that that stock had not only survived the 20% market correction in the fourth quarter of 2018, but thrived during it.

Starbucks was actually up double digits during those turbulent three months. I figured that boded well for its prospects once the market got going. So far, I’ve been right!

Halfway through 2019, Starbucks shares are up more than 32%, virtually doubling the 16.6% return in the S&P 500. Technically, another big break higher could be forthcoming.

There have been three big pushes higher this year, each of them followed by a period of churn, with the stock spending about a month in a holding pattern. Since gapping up from $76 to $82 the first week of June, SBUX has been in one of those holding patterns, trading between a high of $84 and a low of $81.

So, if form holds — and the market cooperates — we could see SBUX break to new highs in the first half of July. From there, steady sales and earnings growth could keep pushing the stock higher.

Analysts anticipate 10.7% EPS growth and 6.1% sales growth this year, and the company has beaten estimates by an average of nearly 7% in the last four quarters. So those estimates could be conservative.

With a price-to-earnings ratio of 36, SBUX is a bit pricey. But the P/E has been above 30 all year, and that hasn’t slowed the stock one bit.

Sprinkle in the modest dividend payout (1.9% yield), and there’s a lot to like about SBUX even at this slightly lofty valuation. It probably won’t jump another 32% in the second half of the year, but if earnings don’t disappoint, there’s no reason to believe it won’t continue to trend higher into 2020 and beyond.

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