Starbucks

SBUX-Q

They were the darling of Wall Street for many years with high multiple as they continued to grow. Now they hit a rough patch. The multiple is still in the low 20’s. Probably too high for his liking. He prefers to pay a higher price for more certainty.

A long-tome owner, despite this going sideways for a few years. China hasn't yet panned out, with some missteps. It opens a store every four hours around the world. Still likes it. They're working through mobile ordering. It will break-out. He's sticking with it.

Trying to recalibrate. P/E used to be higher. Trying to get into alcoholic beverages. Still looks pricey. Wait for another quarter before getting back in.

They are watching it and love the growth they see. Going into China should be a good move for them. The new offerings, including alcohol, add to the growth opportunity. He would watch for a good entry point, but holding for a long term investor is good. Yield 3%.

Expanding into China is key. Headwinds are management turnover and competition from custom coffee shops--Starbucks is no longer special or unique. Let's see what Q2 earnings are like.

They are trying to expand into other areas like salads. However, there are so many locations now that they could be cannabilizing each other. True, the company is doing really well, but is the stock doing very well? Look at valuation.
Starbucks is in the low/mid-$20s. That said, China loves Starbucks and there's big opportunity here for Starbucks. Research this.

(A Top Pick May 9/17, Down 19%) It got whacked very recently. Last week they put up some bad news. That is what happens in the US when you change your story. Coffee land is competitive. It is a good global franchise that has done nothing.p

Over three years, it's been sideways. He sold his shares because valuations were stretched. The CFO is retiring, they're shutting some US stores, and strong competition overseas. True, they've gotten into juices and other areas which has helped, but consumers can always switch to another brand. Be careful with this now. Watch their next report; their last quarter was weak.

Owned it and sold it a while ago. Great franchise. Great name. Valuation is pricey. He doesn’t see a catalyst for the next leg up for this particular name.

(A Top Pick April 27, 2017, Down 2%) Has underperformed for three years. It's been in a tight $59-68 range. Still loves the name. The market's love will return, though he won't increase his holdings. Earnings are up. PE is nearly 24x forward. It does well through bad economic times. It's one of his biggest holdings. Doesn't feel their stores are oversaturating markets.

Makes sense as a long-term hold. Locally, we'll see more competition. It'll continue to grow globally. Innovative on the product side, such as introducing alcohol sales at night. One problem is that the CEO left came back and now gone. Investors ask, How is it going to be run? Markets are waiting.

Over time, this has been a good holding. However, it’s had a very volatile year since 2016. Partly because the restaurant group has not been in favour, and partly because the company has his own issues. They've grown their dividend 24%-25% a year over the last 4 years. However, this is a sector that is not terribly economically sensitive. If you are going to be in the consumer sector, he would prefer something that is in the travel/leisure space, and would look at a Marriott (MAR-Q) or a Carnival Cruise Lines (CCL-N).

This has done extremely well. It’s always been a fairly high valued company. Because of that, he has stayed away, but has a great deal of respect for the franchise and what they’ve done. China is doing extremely well for them, and is very exciting. However, domestic operations in the US, and to some extent in Canada, are suffering from a lack of traffic. If it was a lower multiple company, he might be a little more excited, but there are too many other exciting opportunities.

It is brilliant. It will carry on. It is innovated. Nobody will ever catch it up.