Please ensure Javascript is enabled for purposes of website accessibility

Meme Stocks Are Temporary -- This Stock Is Forever

By Neil Patel – Aug 31, 2021 at 10:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Avoid the latest market mania. Instead, focus your attention on owning high-quality businesses.

The Reddit-fueled, meme-stock craze has characterized the stock market in 2021. Retail traders are piling into shares of companies they believe will rise quickly in order to make a quick buck. While exciting and stimulating, this can't go on forever. 

A more sustainable investment approach, and one that can build massive amounts of wealth over the long term, is to own high-quality businesses with competitive advantages. I believe Starbucks (SBUX -0.55%) is one such company that'll be successful for many years to come. 

person trading stocks on smartphone

Image source: Getty Images.

A compounding machine

It's probably an understatement to say that Starbucks completely upgraded the entire coffee-drinking experience. Consumers have no issue now with paying a premium for what they view as an elevated product, and this is why the business has thrived and will continue to do so.

Over the past decade, Starbucks has grown its store count from just over 17,000 to a whopping 33,295 today. During that same time, revenue and profit increased at a compound annual growth rate of 10% and 15%, respectively. These impressive numbers demonstrate just how long the company has been in expansion mode. 

Strong brand recognition 

Starbucks delivers on consumers' love of caffeine, which is a global phenomenon. Therefore, it's easily recognized around the world, something that has significantly contributed to the company's prosperity. A big reason for Starbucks' success can be tied to one major factor: its powerful brand. 

Menu innovation is key to strengthening the brand in consumers' eyes. In the U.S. and Canada, the anticipation of new fall menu items is a huge deal every year. In the past, it's been such specialty offerings as Pumpkin Spice Latte or Salted Caramel Mocha. The latest is Apple Crisp Macchiato, which Starbucks launched on Aug. 24th.

Consistent product introductions bolster the brand because they encourage frequent customer visits and drive excitement. I have no doubt that Starbucks will continue excelling at this strategy and it will propel the company for a long time. 

Adding to the brand image is a seamless digital ordering experience. Starbucks' mobile app, with 24.2 million active rewards members as of the last quarter-end, allows coffee enthusiasts to order ahead and pay to collect points. Starbucks' ability to offer drive-through, pick-up, and delivery options during the pandemic further entrenched its competitive position. 

Expect more store openings

Besides being top-of-mind for customers, another main ingredient for a forever stock is having a large runway for expansion. 

Not only does Starbucks have a history of success, but according to management, the growth story is far from over. During an investor presentation last year, then-CFO Patrick Grismer boldly predicted that the coffeehouse chain would reach 55,000 locations by 2030.

In fiscal 2021, Starbucks plans to open 1,100 net new stores globally, and 600 of them will be in China. The business surpassed 5,000 stores in the fast-growing Asian nation in the most recent quarter, making it the second-largest market for Starbucks (other than the U.S.). 

It's extremely tempting to want to hop on the meme-stock bandwagon. The fear of missing out is a real issue that a lot of individual investors have to deal with, particularly today when technology has made it so easy to check up on the latest financial news or stock information. 

If your goal is to build wealth in a prudent, steady, and disciplined way over the long term, owning a company like Starbucks is a smart idea. The business will certainly be flourishing far longer than meme stocks will. 

Neil Patel owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends the following options: short October 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Starbucks Stock Quote
Starbucks
SBUX
$99.01 (-0.55%) $0.55

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.