Starbucks Corporation (SBUX) Stock Is a Very Nice Brew for Bulls

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It has been a “bear-ista” of a time for Starbucks Corporation (NASDAQ:SBUX) investors the last few weeks. But with others having aggressively rung the register in SBUX stock, opportunity is knocking for those craving a nice blend of value and growth off and on the price chart and Starbucks options menu. Let me explain.

Starbucks Corporation (SBUX) Stock Is a Very Nice Brew for Bulls

Following a lengthy and near two-year long brew cycle and period of relative weakness on the Starbucks chart, I wrote optimistically about the coffee impresario on May 25 and why purchasing a SBUX bull call spread looked attractively priced for the situation.

The timing in SBUX stock was good, but alas only for a short time. After a brief rally captured fresh, but modest all-time-highs, Starbucks reversed sharply. Shares are now off nearly 8% for the period as some investors rang the register, while others simply took to the exits with less money in their pockets.

So, what’s brewing in SBUX stock?

There was a matter involving a fecal bacteria health hazard in the U.K. That news, however, was first reported at the end of June and barely registered as a menace for investors already coping with the bulk of SBUX’s price decline.

Others have attributed the weakness in SBUX stock to growing skepticism the company can’t continue pulling off a very successful expansion into China as part of its Asian growth plan.

Starbucks has already set up a wildly successful 2,500 plus stores and plans to grow operations with 500 additional locations per year over the next five years. Ironically, the grumpier, “no-can-do” attitude sounds like some investors have woken up on the wrong side of the bed and are in desperate need of a Starbucks coffee.

Lastly, some of the resident, pooh-poohing bear-istas may be getting anxious that SBUX stock’s healthy earnings growth estimate of nearly 18% is prone to downward revision. The failing state of U.S. malls and Starbucks substantial toehold in and around those venues appears to be one easy target.

Bottom line though, despite the likely bearish secular trend in America’s malls, overseas growth initiatives, innovative strategies such as the company’s budding and very promising Roasteries and Reserve brand strategy, wildly popular loyalty program and new mobile ordering platform continue to make for a strong brew of ongoing and improved growth for SBUX stock.

SBUX Stock Weekly Price Chart

Source: Charts by TradingView

In my prior analysis of SBUX stock, there was strong reason to believe a cup-shaped or double-bottom base had formed since late 2015 and was confirming the bullish setup with a nice breakout of a handle consolidation in the upper one-third of the price pattern.

The bad news is a marginal higher high out of the cup and subsequent failure resulted in a double-top pattern in shares of Starbucks.

Optimistically, the decline over the last several weeks is now offering investors a nice technical-based, value blend entry into SBUX stock. Currently, Starbucks has entered an oversold area of price support backed by stochastics, a couple Fibonacci levels, the 50-week simple moving average and intersecting trend-lines.

Starbucks Stock Modified Bullish Fence Strategy

Given the overall bullish view for SBUX stock and after reviewing the options board, I like the idea of approaching shares with a bullish modified fence strategy. Specifically, selling the Aug $57.50/$55 bull put spread and purchasing the August $60 call is priced for a credit of 5 cents with shares at $58.04.

What does this spread package offer bullish investors who might otherwise buy shares? For starters, this combination contains risk to $2.45, or roughly 4% of the price of SBUX stock below $55.

Given that earnings are in late July, containing risk is an important feature to consider. It also means if Starbucks continues its aggressive price slide, the opportunity to buy shares in a stronger financial and mental position could be more of a reality than otherwise.

From $57.50 to $60, if SBUX was to close in that price range at August expiration, the trader would capture the small 5-cent credit. It’s small potatoes, but better than nothing and larger profits can accrue prior to maturing due to the combination’s positive deltas.

Lastly, this trader owns the August $60 call for a credit. Hence, any bullish movement in excess of the strike or about 3.5% could be better than owning the ‘golden ticket’ and who knows, maybe a paid trip to Seattle’s whimsical and not-to-be-missed, Starbucks Roastery in Seattle, dubbed the Willy Wonka of Coffee.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


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