Investors have many different strategies for finding stock ideas. One popular method is using lists populated by online brokers. Robinhood (HOOD 4.44%), for example, provides many kinds of stock lists for its users, including one focused on the 100 most popular shares.
Using a list, of course, should only be a starting point for making investment decisions. Just because a stock is popular doesn't necessarily mean it would make a good investment. Investors need to dig deeper to determine where to allocate their investment dollars.
Luckily, Robinhood's list of the 100 most popular does contain some strong businesses. Here are three stocks on that list that are great, long-term picks.
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Starbucks
Coffee purveyor Starbucks (SBUX 0.47%) has been in the news lately due to changes being made by interim CEO Howard Schultz. Schultz is now serving in this third stint as CEO and wasted no time making some significant changes, most notably the suspension of share buybacks in order to spend more on the business. Shares are down almost 10% since this announcement. Time will tell if this was the right decision, but if the company is able to make meaningful improvements to the business, it will be accretive to shareholders in the long run.
Stepping back from this recent news, Starbucks' most recently reported quarter (Q1 of its fiscal 2022) showed the business is continuing to recover from the pandemic-induced struggles of the past few years. Comparable-store sales for the quarter increased 13% year over year with North American sales growth of 18% helping to offset an international decrease of 3%. This is not a surprise, considering Starbucks' exposure to China, where a resurgence of COVID-19 has led to store closures.
Even with the international challenges, the year-over-year growth was strong. Revenue increased 19%, the operating margin grew from 13.5% to 14.6%, and earnings per share jumped 30%. Starbucks has navigated through a very difficult period of its history, and brighter days should be ahead. Buying shares now would mean purchasing the stock at a price-to-sales (P/S) multiple of 3, near to where it was in the middle of 2020.
Costco
Member-ship only retailer Costco Wholesale (COST 1.01%) has had a strong start to 2022 with its stock up 4%, outpacing the S&P 500 by almost 12%. Looking into recent results, it's easy to see reasons for this outperformance. In the second quarter of Costco's fiscal 2022 (ended Feb. 13), revenue increased 16% year over year and comparable-store sales were up 14%. The bottom-line growth was even more impressive with net income increasing 37%.
Costco's membership numbers are also improving. At the end of the quarter, the renewal rate for a Costco membership stood at 92%, up slightly from the preceding quarter. Management also pointed out that more members are choosing the higher-cost executive membership and that those customers renew at a higher rate than non-executive members.
Costco's stock isn't cheap. With a price-to-earnings (P/E) ratio of 48, it's only around 3% off its high. For comparison, Costco competitor BJ's Wholesale Club has a P/E multiple of 22. But Costco may be worth its premium price. Over the past three years, it has grown net income by 186% compared to 53% for BJ's. Costco also has a substantial lead in members, ending the second quarter with over 63 million compared to BJ's 5.5 million.
Walt Disney
The Walt Disney Company (DIS -0.04%)'s stock is currently down only 1.2% over the past three years. That's remarkable considering its entire parks business was shut down during the height of the pandemic. What helped Disney get through that potentially devastating hit to its business was its streaming content, most notably the launch of Disney+ in November of 2019.
When Disney reported its first-quarter 2022 earnings in February, it was clear that the company is on the rebound and poised for a strong year. Overall revenue increased 34% year over year, driven by revenue growth of 102% for parks and experiences. Even more impressive is that the parks and experiences revenue of $7.2 billion was the highest it's been since before the pandemic, and that's with reduced capacity at the parks. Management also reported that the per-capita spending at domestic parks is 40% higher than in the first quarter of fiscal 2019. This shows that not only are people returning to the parks, but they're also pending more while there.
Disney shares are trading at only three times sales, essentially the same multiple as before the pandemic. With the success of Disney+ and the return of the parks business, I think Disney shares are a steal at this valuation. It's easy to see a path to continued positive results from here, making Disney a great long-term pick.
