Why is Starbucks Corporation (SBUX) the Best Restaurant Stock to Buy Today? - InvestingChannel

Why is Starbucks Corporation (SBUX) the Best Restaurant Stock to Buy Today?

We recently compiled a list of the 10 Best Restaurant Stocks to Buy Today. In this article, we are going to take a look at where Starbucks Corporation (NASDAQ:SBUX) stands against the other restaurant stocks.

Currently, quite a bit of anxiety is struck by restaurant stocks in the market, as the Russell index that tracks restaurants experienced a 6% fall since March 2024. Other sectors, like industrials, and materials, to name a few, are experiencing a similar struggle as restaurants. This situation, as a whole, is indicative of potential late-cycle market issues marked by the market’s slow growth in general, which is driven by consumer distress in the U.S. in a larger sense.

Moreover, amidst this inflation-stricken market, restaurants in the U.S. are in quite a bit of a meal deal war, hoping to fulfill the customers’ need for affordability. As such, Sonic, a drive-in fast-food chain headquartered in Oklahoma, U.S., is the newest member to join the war, as it has introduced a $1.99 value menu, boasting a selection of various food items.

Previously, Taco Bell and Burger King have already introduced their discounted meal deals, showcasing various brands’ dire attempts to attract customers in the given circumstances. Moreover, this is also driven by increased food and wage costs in the market, pushing down the margins of various restaurant brands, according to analysts. The Consumer Price Index has risen at a cumulative rate of 20.8% since February 2020, as reported by Bureau of Labor Statistics data. Thus, this explains why restaurant ETFs and stocks have started off the third quarter on a lower note.

Nevertheless, there’s bright hope as the global fast food, which goes hand-in-hand with the restaurant industry, is set to grow at a CAGR of 3.7% from 2023 to 2032, expected to reach $1 trillion by then. Furthermore, one can keep their hopes high, as it is reported that a staggering 37% of the U.S. population is a consumer of fast food. For the fast-food market, the millennial segment is one that it must rely on the most, as 54% of this segment steps toward fast-food chains once or twice every week. You can check out our article about the 20 Fast Food Chains with Most Locations in the World.

On the other hand, according to the National Restaurant Association, the U.S. restaurant industry is forecasted to result in $1.1 trillion worth of sales in the year 2024. This will translate into the employment of 15.7 million Americans. However, amidst the supply chain inefficiencies and rising costs, it would be challenging for restaurant operators to make profits, and technology is expected to play a decisive role in determining the winners and losers of the market in the coming time, according to market analysts.

Thus, it’s essential to know where to put your money, when it comes to the restaurant market. Hence, now we will take you to our list of 10 Best Restaurant Stocks to Buy Today.

Methodology

To curate our list of 10 Best Restaurant Stocks to Buy Today, we gathered a list of all companies with a significant presence in the restaurant industry. We then further narrowed down the list based on the companies’ respective upside potential and ranked the finest remaining companies by their number of hedge fund holders as of Q1, 2024, using Insider Monkey’s database that tracks the activity of 920 hedge funds. For stocks with an equal number of hedge fund holders, we used their upside as the tiebreaker. Plus, note that all the stock prices quoted are as of writing this article unless otherwise stated.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

15 Highest Quality Coffee Chains in the US A barista pouring freshly brewed coffee from an espresso machine to a cup in a bustling cafe.

Starbucks Corporation (NASDAQ:SBUX)

Number of Hedge Fund Holders: 69

Already being the biggest coffee chain in the world, Starbucks Corporation (NASDAQ:SBUX) has no plans to stop! It has set out a goal to take its total tally of locations to 55,000 by the year 2030 from 38,000, as of 2024. On the other hand, it aims to increase its number of U.S. outlets from 16,352 currently to 20,000! A growth of 4% is expected for its net openings in the U.S. in 2024. It’s the fastest-growing fast-food chain in the U.S., as reported by one of the articles by Insider Monkey.

Thus, it’s safe to say that the analysts are putting their faith in the company’s goals, as 10 more hedge funds have taken up a stake in the company’s stock, taking the total tally to 69! These stakes translate into a value of a whopping $2.7 billion! Furthermore, Starbucks Corporation’s (NASDAQ:SBUX) stock is carrying a satisfying upside potential of 16%.

However, the Q2 2024 performance of the company was quite disappointing, summed up by Laxman Narasimhan, the company’s CEO:

“Our performance this quarter was disappointing and did not meet our expectations. Our Q2 total company revenue was $8.6 billion, down 1% year-over-year. Our global comparable store sales declined 4% year-over-year, driven by a negative 3% comp growth in North America, led by declining traffic and a negative 11% comp growth in China. Our global operating margins contracted by 140 basis points to 12.8%, and our overall earnings per share declined by 7% to $0.68. While these results do not reflect our strengths, our capabilities or the opportunities ahead, we confront these challenges from a position of enduring strength.”

However, the following is what Rachel Ruggeri had to say about how the company views the current situation:

“First, Q2 was a challenging quarter for us as headwinds consistently persisted throughout the quarter leading us to revamp our actions and response plans to both unlock and attract demand. Second, our triple shot strategy continues to deliver efficiencies even in the face of headwinds reinforcing that we have the right strategy at the right time. Next, our fiscal year 2024 guidance has been revised to reflect our Q2 performance, year-to-date results as well as the near-term headwinds we’re experiencing. We, however, remain confident in our long-term growth opportunity and thus, committed to our strategy and the related investments. And finally, our disciplined approach to capital allocation drives our financial fortitude, reflecting shareholder commitment underpinned by our best-in-class dividends.

This allows us, to preserve both balance sheet durability and flexibility, positioning us to successfully navigate this complex and dynamic environment.”

Overall SBUX ranks 1st on our list of the best restaurant stocks to buy. You can visit 10 Best Restaurant Stocks to Buy Today to see the other restaurant stocks that are on hedge funds’ radar. While we acknowledge the potential of SBUX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SBUX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.

Disclosure: None. This article is originally published at Insider Monkey.

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