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.
