Starbucks Stock Has Been on a Tear This Year. Here’s Why the Run Isn’t Over Yet.
When I recommended Starbucks (SBUX) at the beginning of the year as my top stock to buy for 2019, 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. SBUX stock 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!
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Halfway through 2019, Starbucks shares are up more than 34%, nearly doubling the 18% return in the S&P 500. And looking at the chart, another big break higher could be forthcoming. In fact, it might have just begun…
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 continues to cooperate the way it has for most of this year—we could see SBUX break to new highs in the first half of July. And actually, it may have just done it, closing at a new all-time high above 85 on Tuesday.
From here, steady sales and earnings growth could keep pushing the stock higher (second-quarter earnings are due out July 25). 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 (P/E) 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 (1.7% yield), and there’s a lot to like about SBUX even at this slightly lofty valuation. It probably won’t jump another 34% 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.
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 growth 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!