This morning we learned that Starbucks (NASDAQ:SBUX) ex-CEO Howard Schultz may be throwing his hat in the political ring. While he is not leading Starbucks, this will certainly put the company in the line of potential political fire.
This morning the stock is down 1.5%, which could be partly due to the headline or as a reaction to Caterpillar’s (NYSE:CAT) bad earnings news. Last year, there were rumors about this, yet the stock did relatively well. But the reaction is always different when the actual news comes out.
That aside, Starbucks is doing well of late. SBUX stock is up 17.6% in a year while the SPDR S&P Retail ETF (NYSEARCA:XRT) is down 8.4%. Starbucks has had its fair share of worries but most were around their throughput. Their critics complained about the long lines, which is a good problem to have for any retailer.
Last year there were fears stemming from Starbucks’ China markets but those, too, are subsiding. Admittedly, this may change in early March if the two countries don’t come to terms or kick the can on the deadline. Otherwise, SBUX stock is a proven performer and deserves the benefit of the doubt.
But that is nothing new to me. I’ve been a long time fan of Starbucks stock. But for a long while, it was stuck inside a wide horizontal range with hard resistance around $61 per share. Last November’s earnings report changed that — SBUX stock spiked by $10 to reach $68 per share.
Then, on this most recent earnings report, SBUX shrugged off headline concerns, and the important thing about this is that it’s defending the neckline from where it finally broke out.
So is it too late to chase it? No.
When a stock spends months consolidating inside a range then breaks out of it, that range will serve as forward support. So the bulls will have a good base on where to build higher levels. All that management has to do is continue to deliver on plans.
Just recently, Starbucks announced that it partnered with Alibaba (NASDAQ:BABA) to perk up its delivery service in China, which is a huge opportunity market for SBUX. Clearly, they are not afraid to seek alliances where they see fit. This is a heads-up management team even after the recent change in the C-Suite. Hopefully, Howard Schultz’s political aspirations won’t cause any blow-back to the stock.
While it was stuck below $61 per share I sold put options on dips to create income but now I can hold the stock outright for the long-term. Those who want to invest in a basket of solid fundamentals ought to consider SBUX stock.
This year, SBUX stock is off to a good start in spite of a shaky knee-jerk reaction to the earnings headline. So there could be sellers still lurking especially if the general markets correct in the next few days. This is a potentially violent week from several angles.
We have almost $200 billion in potential market capitalization that could move from this week’s earnings, especially leaders like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). But so far the bulls have prevailed in times of uncertainty in 2019. I expect that to continue as I doubt that all mega-cap stocks will disappoint investors this week.
The Starbucks-specific earnings headline has passed for SBUX, so from here it will move with the general markets but inside its own range of prices. So I expect the recent lows to hold and they, too, will be buying opportunities.
So to guard against the potential dips, I would start with a partial position just so I can leave room for adding, in case equity markets fade a little. In the long run, SBUX will continue its growth strategy and build upon its cash cow. The immediate sentiment threat that we had last year is dead. This year while we’ve had a few stints of fear, they have not had follow-through selling.
Those who are looking to invest in a stable of staple companies for the long-term should consider SBUX. Trading in and out of it will likely be more work than benefit unless someone plans on actively trading and using options. So the idea is to enter the stock with the confidence that management has proven itself worthy and that they will deliver on their plans for years to come. The world is addicted to Starbucks’ coffee, and it’s a cash cow upon which it can expand into other income streams.
Bottom Line on SBUX Stock
Fundamentally, Starbucks stock is priced in line with other mega consumer retailers like McDonald’s (NYSE:MCD), Costco (NASDAQ:COST). This is to say that it’s not susceptible to an obvious correction from a bloated state. Buying it here for the long-term carries no undue risk.
In summary, SBUX is a great American company on a global expansion mission. It has proven management and a strong opinion on Wall Street. So my worry is that it sounds too easy. But I will always be comfortable taking risks on solid fundamentals.
I reiterate the short term potential risk stemming from the political headline threats into mid-March. So patience and sizing are important here even if the SBUX story is strong on its own.
In three weeks, U.S. politicians will fight it out again over the government budgets and the spending limit. This is in addition to the drama over the China tariff war.
Click here for a bonus video on how to create income from nothing using FedEx (NYSE:FDX) stock as an example. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
