Despite three days of gains, U.S. financial markets looked likely to continue to deliver volatility for the foreseeable future. The markets’ wild swings might be nauseating, but they also offer investors ultra-low entry points for high-quality stocks. Starbucks (NASDAQ:SBUX) is one such equity that deserves to be on your buy list. SBUX stock has fallen 20% over the past week on coronavirus worries, but the firm looks likely to bounce back from the carnage when all is said and done.
Starbucks has already lived through one recession in 2008, which should give investors confidence that the coffee chain can do it again. Plus, Starbucks’ strong online presence, drive-through options and customer initiatives make it a great pick both during the coronavirus crisis itself as well as the recession that’s to follow.
SBUX Stock Has Staying Power
With roughly a third of the world’s population under lockdown, restaurants are understandably suffering. Starbucks is not immune to the challenge of lower foot traffic and reduced spending, but it looks like the coffee chain might be able to make the best of it and outperform peers.
While coffee isn’t strictly essential, it’s become a must-have morning pick-me-up for many people. As more and more states call for lockdowns in America, Starbucks has been able to continue serving customers via its drive-through locations.
Foot-traffic data shows that Starbucks actually saw the number of customers it served rise during the first week of March when worries about coronavirus in the U.S. ramped up. Of course, data from the remainder of the month is likely to show a decline, but it’s worth noting that people were unwilling to forfeit their cup-of-Joe even as virus fears increased — a good sign for Starbucks for the remainder of this crisis.
Customers aren’t the only ones chains like Starbucks have to hold on to— the firm needs its employees to come to work as well despite worries about contracting the virus. Starbucks has been able to manage the risk of becoming infected by operating drive-through only, which limits customer interaction. But the firm has also been generous to its employees which will go a long way in encouraging them to stick around.
CEO Kevin Johnson gave employees the option of full paid leave and increased compensation for those who still came to work. The firm also offered mental health benefits and has committed to paying all of its employees over the next month regardless of whether or not their store is open.
There are a few reasons Johnson’s decision to support staff is crucial, not least of which is the fact that it will limit hiring and retraining hundreds of staff following the lockdowns. But happy employees make for happy customers and part of Starbucks’ appeal is its friendly atmosphere encouraging people to come in for coffee.
Outside of the coronavirus outbreak, Starbucks is just a quality stock to have in your portfolio and its discounted share price makes it a good buy right now. When the coronavirus pandemic eventually subsides and the dust settles, Starbucks will recover. In China, Starbucks has already started reopening its stores as the nation returns to normalcy. Johnson says the firm’s experience there will ensure a successful reopening of its other locations around the world.
For now, Starbucks is the only coffee chain of its kind, giving it a massive advantage over any potential new entrants. Dunkin Brands Group (NASDAQ:DNKN) is the closest thing to a competitor, but the two chains have an entirely different concept.
Starbucks has one of the most successful restaurant mobile apps on the planet and its constant innovation means it will likely remain that way. Its rewards program has become hugely popular among coffee fans and the firm is planning to expand it even further with a game similar to Pokemon Go.
In the rollout, Starbucks is giving away some 2.5 million prizes to those who use the augmented reality game.
The Bottom Line
SBUX stock has been hurt by the coronavirus selloff, and there’s likely more volatility ahead as the market susses out the economic impact of shutdowns around the world. But Starbucks has staying power, strong financials and a rock-solid business which makes it a great stock to hold on to even if a prolonged recession is on the horizon.
Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.