Few stocks came through the October-November market correction unscathed. Even the biggest and baddest growth leaders like the FANG stocks fell more than double digits. So for a stock to not just tread water but thrive over the last two-plus months bodes well for its prospects as the market recovers. And that’s why SBUX stock looks so attractive right now.
While the S&P 500 tumbled more than 9% in October and November, Starbucks (SBUX) jumped 20%, and has traded above both its 50- and 200-day moving averages for more than two months. Here’s what that stark contrast looks like on a chart (SBUX stock is in red, the S&P 500 in blue):
How did Starbucks stock get piping-hot while the market cooled? There are three primary reasons.
Big Fourth-Quarter Earnings
On November 1, the company reported fiscal fourth-quarter earnings that beat analysts’ expectations on several fronts. Same-store sales in the U.S. and the Americas improved 4% from the same quarter a year ago, ahead of the estimated 2.7% increase and Starbucks’ biggest jump in same-store sales in more than a year. Global same-store sales improved 3% year over year.
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Sales and earnings also edged out consensus estimates, with the $6.3 billion in revenues marking a new quarterly record and a 10.6% improvement over the same quarter a year ago. New late-afternoon “happy hour” deals and some remodeled stores were among the catalysts driving the big quarter.
Wall Street clearly liked the Q4 report: SBUX stock gapped up from 58 to 68 in the week following the earnings release.
A Midsummer Bottom
Of course, SBUX gapped down nearly as much in June, bottoming at 48—its lowest share price in more than three years. Prior to the Q4 earnings report, the stock was still in recovery mode, trading below its January and April highs. Investors were looking for a reason to buy SBUX stock; once they got one, it kept rising after breaking through three-year resistance near 61 in early November.
While it was a bad month for the market, October was good for U.S. retail sales, which were 0.8% higher than last October—the second-highest year-over-year sales increase this year. That came on the heels of a third quarter in which consumer spending grew at its fastest pace in nearly four years.
While retail stocks as a group still struggled the last two months, shares of restaurants and fast-food chains held up well. Look at some of these October-November returns in fast food stocks (during which time the S&P 500 fell 5.3%):
McDonald’s (MCD): +12.5%
Jack in the Box (JACK): +5.8%
Wendy’s (WEN): +4.6%
Chipotle (CMG): +4.2%
YUM! Brands (YUM): +1.4%
2019 Outlook for SBUX Stock
Where does SBUX go from here? It’s already established a nice-looking pause in the 65-to-68 range since its early-November gap up. With the market showing signs of life, and with the always-lucrative holiday shopping season in full swing (and November retail data yet to be released), it’s a good bet that when Starbucks stock does break out of its month-long holding pattern, it will be to the high side.
Beyond that, the fundamentals look good—the stock trades at a reasonable price-to-earnings (P/E) 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 SBUX stock heading into the new year.
Starbucks might be just the wake-up call your portfolio needs after a two-month slumber!
Note: SBUX was recently featured in Cabot Top Ten Trader. To receive further updates on the stock, and to get the names of the 10 hottest stocks on the market every week, consider taking a trial subscription to this momentum-stock advisory. For details, click here.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version.