Starbucks

SBUX-Q

This has been a frustrating year. He is buying and averaging down. There are 2 parts to the story. There is the domestic story. They came out with some revenue and growth rates in North America that people were not expecting. Thinks it is going through a soft landing. We are used to the high growth rates which is coming down a little. The real story is the China side, where they have 2600 stores and are adding 500 stores a year. As long as China/US relations stay good, he believes this company will continue to see great rewards out of that region. The drop in the stock price is a good buying opportunity.

They have tried very hard to have card holders. 45% of transactions are now done on a non-credit card/non-cash basis. It helps them cut costs. The growth will be international. The stock has trended sideways for a while.

He trimmed some after owning it for a long time. He thinks it is about ready to go again. It is a case of getting money to flow into that sector. It’s an international story.

SBUX-T vs. QSR-N. He sold SBUX-T because the same store sales were weakening and that is happening for QSR-T as well. Both are not too cheap. There are headwinds in theses names.

Price momentum is not great. Valuation is not fantastic at 14 times. They issue a bit on the last quarter. They just were not able to grow at the previous pace.

When a big US name goes up he wonders if Amazon is going into their space. It is a high price. They are spending a lot on defensive strategies to knock out the competition.

Feels this is transitioning from a very high growth company to a slower growth, and that it is fully valued.

(Market Call Minute.) A great company, and he would classify it as a Weak Buy to a Hold. If it dropped another 10% he would definitely be a buyer.

Discretionary, as a whole, has really struggled. It tends to be more idiosyncratic in that it is more sub-sector focused. Within restaurants and hotels, it has been great. This company has really come back, however it has pulled back pretty substantially from the $65 price, so technically, you might be a little wary. The group is neutral. It’s not the best neighbourhood to be looking in. He would prefer a McDonald’s (MCD-N) at this time, which has more fundamental levers.

A great business. They’ve done an excellent job at creating a cult-like following. Started with the Starbucks card, and more than a 3^rd of all transactions are done with the card. They are innovating. The mobile order and pay has really taken off. Some locations also have wine and beer. It is not just a coffee shop, it’s a coffee shop that is continuing to innovate and work itself into different occasions. However, you pay a high multiple for it, but he thinks it is worth it. Trading at about 28X with a yield of about 1.8%. You could take a half position and wait for some weakness.

This has built a great franchise, and the franchise is becoming much more global. They are very unique in that they are very open to making changes when it is necessary, not only for their coffee, but also how they treat clients. There is still a lot of opportunity for them to grow globally. A good story.

He likes this. A great brand name. At this point, he is just a little more skeptical. The valuation is so high. It is just saturated with growth. You are paying a lot, and you are not going to have quite the growth potential a decade ago.

One of his absolute favourite names. This is breaking out of the range it was in. Thinks the new real story on this is their food comps. Feels their food is going to add $8-$12 in share price in the next 12 months. They are growing with new stores and with suggestive selling.

He likes consumer names in areas where the middle class is growing, which is Asia. About 14% of their stores are in Asia. The company is going to see nice, double digit earnings growth, driving high margin expansion. He likes their global exposure. Dividend yield of 1.6%. (Analysts’ price target is $66.)

It would be okay as a dividend grower. But these stocks get to a point of saturation so he questions the growth rate. However, it is a safe stock. Do not expect it to appreciate much. The growth phase is over and it is dead money. It will be difficult for this company to grow. The coffee at Tim Horton’s is just as good.