A constant barrage of negative news about the economy has created a great opportunity for long-term investors to put money to work in great stocks. The Nasdaq Composite index is currently down 25% year-to-date, which puts the growth-centric index officially in a bear market.
Two top brands that should be able to survive this downturn and deliver market-beating returns for shareholders are Starbucks (SBUX 1.33%) and Lululemon Athletica (LULU +1.40%). Here's why you can confidently buy and hold these stocks for a lifetime.
NASDAQ: SBUX
Key Data Points
Starbucks
Starbucks is one the strongest consumer brands around, and has delivered incredible wealth for early investors. Iconic brands like McDonald's and Procter & Gamble have a way of maintaining growth for decades. Starbucks is in the same league.
Some investors like Starbucks for the consistent sales. There's no telling how many people visit a Starbucks every morning on their way to work. If you're going to invest in a company forever, you want a business with a highly predictable stream of revenue, and Starbucks certainly provides that quality.
That doesn't mean that consumers won't pull back on the premium prices for pumpkin spice lattes during difficult times. Starbucks saw a mild deceleration in revenue growth during the recession in 2008. But the company generates enough consistency in sales to fund a growing dividend to shareholders. Over the last five years, the dividend has nearly doubled, bringing the stock's current dividend yield to 2.30% -- higher than the S&P 500's average yield of 1.52%.
For a retail business with a large fleet of over 34,000 stores worldwide, Starbucks' recent growth streak demonstrates its potential to deliver solid growth at scale. Total revenue grew 9% year-over-year to a new quarterly record of $8.2 billion in the most recent quarter.
Founder and CEO Howard Schultz credited the growth to the investments the company has made in the store experience, technology, and further driving Starbucks' leadership position in coffee. The company has also found Schultz's latest successor, announcing this past week that Laxman Narasimhan will take over as CEO on April 1, 2023.
Schultz sees an "enormous" opportunity in premium customized cold coffee, which now accounts for approximately 75% of total beverage sales in U.S. company-operated stores.
The stock is reasonably valued at a price-to-earnings ratio of 24 -- a small premium to the market average. This is a good opportunity to invest in a great brand at a fair value.
NASDAQ: LULU
Key Data Points
Lululemon
Lululemon is an emerging powerhouse in the athletic apparel industry. The stock delivered a 350% return over the last 10 years, and there are a few reasons it should continue to drive market-beating returns.
The athletic apparel industry has been growing for a long time. The athleisure megatrend is blurring the lines between workout clothing and casual wear, which serves as a major tailwind for leading brands like Lululemon that have the resources to continually refresh styles and gain market share.
Lululemon also has tremendous brand loyalty. The company generates over $1,400 of sales per square foot of retail space, which is up there with the likes of Tiffany and Apple.
Revenue more than doubled over the last five years, and management says it can double revenue again over the same timeframe. It just launched a new footwear line for women, with men's footwear coming next year. The company also sees growth opportunities to expand into interactive fitness. It acquired Mirror for $500 million in 2020.
Lululemon is highly profitable. Its operating margin has hovered around 20% or better for years. The above-average margin provides abundant resources to invest in new endeavors to further strengthen its brand and generate shareholder returns. Investors should take advantage of the market sell-off to add shares of this retail growth stock while it's down.
