Starbucks Corp – My Top Pick for 2016

As the year 2015 wraps up, we can look back at the year that was: a volatile market that has gone nowhere in particular, ending the year pretty much flat. More importantly, with the turn of the calendar year, we can start to look ahead as to what 2016 will bring. In addition to setting financial goals, I am also considering what stocks to invest in, as I continue my journey towards financial independence.

I am yet to finalize a list of targeted companies broken down sector-wise that I will be sharing with the readers in the new year, but I wanted to get a jump start and share my top pick.

This year’s top pick for me is no different than my top pick for 2015 – Starbucks Corp (SBUX).

sbux-2015

Starbucks Performance YTD 2015

Starbucks started the year 2015 at a (split-adjusted) price of $41.07 and as of this writing, is currently trading at $61.13. The stock price has appreciated a massive 48.8% and paid an additional 1.2-1.3% in dividends bringing the total return to a neat 50%.

Even though I wasn’t a shareholder for the whole year, I watched that stock price climb relentlessly and eventually used the mini-correction in August to initiate my position in SBUX. This is going to be the first of my many purchases of this amazing company.

The overall stock market may have remained flat over the course of 2015, but some companies have seen stellar returns. Some great performers have been companies like Alphabet Inc (GOOG), Facebook Inc (FB), Netflix Inc (NFLX), Amazon Inc (AMZN), Nike Inc (NKE), Visa Inc (V), JetBlue Airways Corp (JBLU) etc. If we try to understand why these companies performed so well compared to others, they all have a common theme underlying: high revenue growth.

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20 thoughts on “Starbucks Corp – My Top Pick for 2016

  1. I always wished I purchased Starbucks a long time ago but its high valuation always made me hesitate to pull the trigger. I am very confident that Starbucks will continue to do very well due to its strong brand so I will have to wait for a bad news or two to jump in eventually. Thanks for sharing!

    BSR

    • Hey BSR,
      Thats what stopped me for so long, but I figured that I have to pay a higher premium for the growth and cannot be valuated based on traditional DGI metrics.

      Im looking forward to adding more shares during weaknesses.
      R2R

  2. Agreed R2R. Top and bottom line growth are key. I was glad to be a Visa shareholder this year, and just submitted a Seeking Alpha article with my thoughts on Visa. I only wish bought more shares earlier. As Buffett likes to say, “growth and value are joined at the hip!”
    -Bryan

    • Hi Bryan,
      I think I just noticed your article on V. I havent read it yet. Visa is another great story – and the low starting yield stopped me in the past – but I think I need to look at it again as I re-evaluate my overall strategy. Thats a great quote from Buffett (as always 🙂 )

      R2R

  3. Big fan of SBUX over the long term. I just wish that everyone else didn’t love it too. There’s a long enough growth trajectory ahead that you can justify paying up some to get some shares of SBUX and then wait for a recession or company specific correctable issues in order to really load up on shares.

    • Haha I hear you, JC. But thats what makes it a great investment story, doesnt it? The growth is showing no signs of slowing down. Going from 1677 new stores in 2015 to 1800 new stores in 2016! I think the company is also very smart to invest internationally while the US$ remains strong – which should provide extra tailwind when the tide turns in the currency markets.

      Best wishes
      R2R

  4. Thanks for sharing one of your 2016 picks. I have to say that you make a good case for SBUX. So much so I added them to my watch list. For now I’m focused on my current holdings but with SBUX and GILD and AMGN recently added I may initiate some new positions during the up coming year.

    • Glad you liked the article, DivHut. SBUX, AMGN, GILD are all great companies to own for the long haul. I have to reevaluate and see if I want to add fast growing companies like AMZN, GOOGL, V etc…which will be a bit of a diversion from the DGI model.

      Best
      R2R

  5. So far I haven’t really looked at stocks like SBUX and NKE because the entry yield is so low. Going forward, I think I need to pay closer attention to stocks like these. Unfortunately, I can’t read your article as I don’t have a PRO subscription.

    • Hi DAC,
      The high PE multiples cause us DGIs to skip those investments – which are a terrible thing to do, considering they are fantastic companies. Definitely belongs in the watchlist for every investor.
      Sorry, didnt realize the article was a PRO subs from SA.

      R2R

  6. RM2R,

    Nice pick, of course! I wrote about them recently and why I keep battling myself on the verge of purchasing them. Damn, is all I have to say. Great company, great brand, extremely strong customer loyalty. Did I mention the dividend growth yet? Far surpasses impressive.

    -Lanny

    • Hi Lanny,
      Yes, the high PE multiple and the low starting div yield causes seasoned DGIs to skip on it. It will always fall through the screeners when you look for say, yields > 3% or something like that. But the fast growing companies which are established dividend payers like SBUX definitely need to stay on our radar.

      cheers
      R2R

  7. Great company and one I have always been looking into since Lanny wrote his article in earlier in the month. With a goal of investing in two sub 2% yield companies, SBUX has caught my attention. We will see if I end up buying 🙂

    Have a Happy New Year!

    Bert

    • Hey Bert,
      Cant go wrong with Starbucks in your portfolio, but it is hard not to overpay for a growth company. There are a lot of headwinds facing the economy now and we could possibly see a pullback in the overall market – which might give us an opportunity. Looking forward to see if you become a fellow shareholder in this company with me.

      Happy New Year
      R2R

  8. Great company, but like many others, I have always shied away due to its valuation. Right now, it has a P/E of about 32. I would love to have this in my portfolio, but I can’t bring myself to pull the trigger at these levels. There are just too many companies that are at much better valuations right now that are just as high quality, and I feel my limited investment dollars would be better served there instead.

    Then again, I’m sure that on 12/31/2015, I’ll be looking back at the current share price and going “Wow, I’d totally buy at that price.” I guess value can be subjective.

    Happy New Year!

    Sincerely,
    ARB–Angry Retail Banker

    • Hi ARB,
      SBUX is the one that kept getting away from me for months. I finally decided to pull the trigger during the pullback in Aug – and IIRC the PE was around 30. I will be looking to buy more if theres a pullback for sure. Keep an eye on it, 2016 may present some great opportunities.

      Thanks for stopping by and the comment. Hope you had a great new years eve and wishing you the best for 2016 (and beyond)
      R2R

  9. Hi Roadmap2Retire,

    SBX looks like a great company to me and there is still enough room left for future growth. Currently, I don’t own them but I might add them to my portfolio this year.

    My best wishes for the new year.

    Cheers,
    Geblin

    • Thats right, Geblin. Looking at the number of stores being opened provides a clue of the trajectory of the company’s growth. Over 1800 stores planned to open in 2016 – and looks like another bumper year in the making.

      Thanks for stopping by and the comment. Best wishes to you too.

      R2R

  10. SBUX location growth is insane. It seems like I see a new Starbucks everyday. Where I work in San Francisco we even have Starbucks locations right across the street from each other. I am interested in investing, but the yield has kept me away. Having said that Visa is another stock I really want to own but avoid due to yield. I may need to rethink my strategy on some of these growth stocks.

    • Reminds me of the old Simpsons clip where they are walking in a mall and there are locations of Starbucks right next to each other – they pass 5 of them and the next one says that a new Starbucks coming soon lol.

      The PE seems high, but you gotta pay up for a growth company I suppose. Hard to use value metrics for growth companies.

      Best
      R2R

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