The stock market can go through periods of higher than normal volatility. If anyone needs a reminder of that, look no further than the violent fluctuations of 2020. Still, over the long run, stocks are an incredible tool for increasing your wealth. And better yet, picking companies with excellent long-term prospects can increase your chances of beating the market and bringing you closer to your financial goals.
Coca-Cola (KO 2.29%), Starbucks (SBUX 0.23%), and Chipotle (CMG -1.60%) all fit that description. These companies will benefit as economies continue reopening this year. Coronavirus cases and hospitalizations are on a downward trajectory, and as of this writing, nearly 250 million doses of COVID-19 vaccines have been administered worldwide -- over 60 million of those going to people in the U.S.
That is giving hope to people and businesses that this recovery will be a sustainable one. And pent-up demand from consumers could boost businesses as they work to recover lost ground.
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Coca-Cola
Coca-Cola will benefit as restaurants and leisure establishments reopen more widely. The pandemic negatively hurt sales of Coca-Cola products due to reduced consumption outside the home, but that trend is likely to reverse in 2021. Management's guidance for the year projects organic sales growth in the high single digits.
Longer term, the beverage maker and distributor expects it can achieve organic revenue growth of 4% to 6% and earnings-per-share growth of 7% to 9%. The plan for achieving those targets rests on two pillars: the enduring appeal of Coca-Cola's portfolio of sparkling drinks and a tailwind from emerging markets.
Coca-Cola is a proven, efficient business, and it expanded its operating margin from 23% in 2011 to 29% in 2020. Adjustments the company made during the pandemic will fuel operating efficiencies even further. For instance, the company reduced its number of brands from 400 to less than 200, which will allow it to allocate resources better. Management also implemented a more networked organizational model, which allowed it to reduce nearly 11% of its staff.
Overall, Coca-Cola is poised to return to full strength as the pandemic recedes.
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Starbucks
Starbucks forecasts that fiscal 2021 will be a banner year with comparable-store sales growth of 18% to 23%. Combined with a planned 1,100 net new stores this year, it should deliver robust overall revenue growth.
Looking ahead, the company is planning to grow its store base 6% to 7% annually starting in 2022 with a heavier focus on international stores. This expansion will benefit shareholders in two ways: by increasing overall revenue and boosting store-level operating margin as international locations are more profitable than domestic ones.
At the end of its fiscal first quarter, Starbucks reported having 21.8 million active rewards members, up 15% year over year, and it recently tweaked the program to allow for rewards to be earned for members who don't preload their cards -- increasing the potential for even more members to join the program. Rewards members spend more than non-members do, and the program gives the company a channel for direct communication with its most loyal customers.
After a temporary setback in 2020, new store growth and expanding operating margins will drive earnings for shareholders long term.
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Chipotle
Despite the challenges of 2020, Chipotle increased overall revenue by 7.1% from the year prior. Fueling those gains was digital sales, which grew 174% year over year to represent 46% of the top line. The fast-casual chain adapted quickly at the pandemic's onset to partner with food-delivery providers while optimizing its stores for mobile orders, pick up, and delivery. Those investments are likely to pay dividends for years to come as a major portion of sales will remain digital even after the pandemic.
For full-year 2021, Chipotle expects to open approximately 200 new locations. The majority of these new stores are equipped with "Chipotlanes" -- a feature that adds another prep line for digital orders, increasing new restaurant sales and improving profit margins as online orders require fewer workers to prepare. In all, of the 161 locations opened in 2020, 100 of them included a Chipotlane. Looking further out, management is confident it can more than double its existing restaurant total.
Over the last decade, Chipotle has grown revenue and earnings per share at compound annual rates of 12.5% and 8.3%, respectively. It won't be surprising if the next 10 years are better than the last, driven by increasing efficiency from the chain's larger scale and new store formats.
The coronavirus pandemic slowed down these long-term winners in 2020, but Coca-Cola, Starbucks, and Chipotle have adapted and are ready to thrive this year and beyond. If you have $3,000 to invest for the long term, you can feel good about buying shares in these three stocks.
