The current bull market began in March 2009, making it the second-longest streak in U.S. history. Even with the ongoing correction that began in February, the S&P 500 is still within striking distance of its all-time highs.
While a historic run like this has been a boon to many shareholders, there is one group that has found this environment particularly challenging -- value investors. Finding inexpensive stocks can be a chore at the best of times, but factoring in the markets nine-year run and the quest for regular payments makes it an even more difficult task.
This joe's not as hot as it used to be
Early investors in Starbucks have enjoyed massive returns, as the stock has gained more than 16,000% since going public in 1992. Over the past three years, however, Starbucks stock has been stuck in neutral, gaining just 7% compared to the market's 32% rise.
The coffee purveyor is currently trading at just 18 times trailing-12-month earnings, hit by fears of slowing comps and the pending departure of longtime CEO and executive chairman Howard Schultz -- the architect of the company's impressive turnaround a decade ago.
With global same-store-sales increasing just 2% year over year in its most recent quarter, and Starbucks lowering its long-term expectations for growth, investors are understandably apprehensive about the future of the company, but there are several catalysts that could help break the stock out of its current rut.
Starbucks biggest opportunity is in China, which already hosts more than 3,000 locations, and the company plans to open another 600 locations per year in its fastest growing market, doubling the current store count in the country to 6,000 by 2022. Same store sales in the Middle Kingdom topped 7% last year, which could provide a bigger boost.
The company also signed a deal with Nestle (NASDAQOTH:NSRGY) to take over global distribution of Starbucks store-bought packaged coffee products. In addition to an upfront payment of $7.15 billion, Starbucks will receive ongoing royalties from sales of its products.
In the wake of these developments, Starbucks plans to increase its shareholder returns to $20 billion by 2020 with a combination of share buybacks and dividends. The company has been aggressively increasing its payout in recent years, up 500% since initiating its dividend in 2010. The company is only using about 35% of its profits to fund the dividend, so there's ample opportunity to increase those quarterly checks. That gives investors the opportunity to buy this incredibly cheap stock before its global growth resumes.
An icon in transition
With all eyes focused on ESPN, cord-cutting, and the ongoing adoption of streaming, many investors have taken a pass on investing in Disney, and I think that's a mistake. The stock currently trades at a bargain basement 14 times trailing earnings, which is near a five-year low. That's certainly understandable, given that the stock has been range-bound for more than three years. It appears, however, that investors are ignoring several potential catalysts that could drive The House of Mouse higher in the coming years.
Disney's branded over-the-top steaming service won't be available until late in 2019. While arriving fashionably late to the streaming revolution, the company has a sizable advantage over every other player in the field -- more than 80 years' worth of exclusive content to draw from. Disney has a vast library of movies and television shows to seed its fledgling service and plans to add more. In addition, the recent debut of its sports companion service ESPN+, while not necessarily a needle mover, will certainly help add to the company's coffers.
The ongoing success of the company's film segment is also being widely panned by investors, yet Disney is currently on track for a record-breaking box office year on the back of stellar performances by Black Panther and The Avengers: Infinity War. The two newest entries to the Marvel canon have generated more than $3.3 billion in worldwide box office revenue to date, and both remain in theaters, adding to the cumulative total.
Disney has roughly doubled its payouts over the past five years, while also moving from an annual to a semi-annual payout in mid-2015. While its yield of about 1.7% isn't anything to write home about, the company still uses only about 22% of its profits to fund the payout, so expect further increases in the near future.
I don't think Disney's growth has run its course, so the time to buy is now while it's still on sale.
Is the inevitable finally here?
Another company that isn't getting much love from investors is Apple. Even after its recent Buffett-inspired run-up, the company still trades at just 16 times forward earnings. There have been signs that the long-anticipated slowing of iPhone growth may finally be materializing. Since the device generated 62% of Apple's revenue in its most recent quarter, it's easy to see why investors may be on edge. Slowing growth, however, doesn't mean that the company is without prospects.
Apple is pursuing several areas that will generate significant growth, though not on the scale of the iPhone. The most mentioned, of course, is Apple CEO Tim Cook's well-publicized plan to double the company's service revenue to over $50 billion by the end of 2021. In its most recent quarter, services revenue of $9.2 billion grew 31% compared to the prior year quarter and accounted for 15% of Apple's total sales. The run-rate for the segment topped $33.4 billion, so that goal is certainly achievable given recent growth rates.
The company's other products segment grew 38% year over year in the most recent quarter, outpacing every other product segment. Wearables were the standout, with sales of the Apple Watch, Beats products, and AirPods as a group surging 50% year over year.
Recent events reveal the extent to which Apple plans to return capital to its shareholders. In conjunction with its second-quarter financial release, the company not only increased its dividend by 16%, but also announced a $100 billion share repurchase saying, "Our intention is to execute our program efficiently and at a fast pace." Apple has nearly doubled its payout over the past five years, and still uses less than a quarter of its profits to support the payout.
A cheap price, a growing dividend, and a solid plan to enrich shareholders make Apple a buy.
The small print
Each of these companies has a significant track record of beating the market over the long term, their more recent challenges notwithstanding. There is, of course, no guarantee that they will return to the heady growth seen in previous years, but with each selling at a significant discount, chances are that investors buying at today's prices will be rewarded. I'm not just saying this, either -- I have sizable investments in each one.
Danny Vena owns shares of Apple, Starbucks, and Walt Disney and has the following options: long January 2019 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Apple, Starbucks, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.