The broad market has been firmly bullish of late. In fact, the S&P 500 is up an impressive 16% from March's low, and higher by an incredible 26% since October's bear market bottom.
Not every stock is participating in the latest leg of this rally, though. Take Starbucks (SBUX 0.12%) for instance. Shares of the coffee house chain are priced right where they were as of the end of last year, unable to maintain any bullish traction. Despite its comparatively healthy earnings reports, investors are finding enough details to pick apart.
Take a step back and look at the bigger picture, however. There's plenty still to like about this company's future, and there are plenty of reasons to buy the stock. Five stand out from the rest.
1. China is a huge growth opportunity
Last quarter was a good one for the company, and a great one for Starbucks' business in China. Company-wide revenue grew 12% year over year, but China's sales grew a whopping 48% as the country continues to ease its way out of its pandemic-prompted lockdowns.
Yet that's only a taste of what's likely coming.
Although its business in China is growing markedly faster than it is anywhere else, the bulk of its business is still being done in the relatively saturated North American market. Of its 37,222 worldwide stores, nearly 17,600 are located in North America. The rest are peppered across the rest of the world. Of those, only a little more than 6,000 are found within China itself.
This comparatively small exposure to China, though, actually works in shareholders' favor. It means there's lots of room left to continue adding stores before the company bumps into the same saturation wall it's hitting in the U.S. And business consulting outfit KPMG still believes that despite a slow start to the year, China's GDP will still grow 5.7% this year and then another 5.2% in 2024. That continued growth will drive more of the budding consumerism rebound.
2. Unionization drama is abating
Regardless of anyone's opinion on labor unions, there's no denying the company's been rattled by a wave of store unionizations of late. More than 340 Starbucks stores' workers are now union members, presenting compensation and scheduling challenges the company's never quite faced before.
In the meantime, even if it was open-minded about the way it manages its workforce, the development didn't leave Starbucks' reputation completely untarnished. The National Labor Relations Board has been heavily involved since the early days of the unionization movement, ultimately determining that the company had demonstrated "egregious and widespread misconduct" by attempting to stifle the movement.
The worst of whatever impact was going to be made, though, now seems to be in the rearview mirror. New CEO Laxman Narasimhan appears to be accepting the situation as the new norm, working with it rather than against it. That should keep the company out of headlines that can damage its business.
3. Innovation is working
If you think Starbucks is just coffee, think again. In addition to a wide array of coffee-based beverages and tasty food, it's got a whole lineup of cold, fruit-based drinks as well these days. Frozen pineapple, strawberry lemonade, and several bottled organic juices are just part of its lineup.
Image source: Getty Images.
This is no small matter. With record-breaking heat gripping most of the country, a piping hot cup of coffee is the last thing on most consumers' minds. Cold beverages are a palatable, marketable alternative right now. To this end, cold drinks accounted for 75% of last quarter's U.S. sales.
Starbucks is also doing some brilliant digital marketing work. Some Target stores are now even offering curbside pickup of Starbucks beverages. The takeaway for investors is the fact that Starbucks has highly marketable options year-round, and clever ways to promote them. That hasn't always been the case.
4. Bull markets are typically rooted in economic growth
It's not an outright requirement, but by and large bull markets coincide with economic growth. And economic growth tends to inspire ramped-up consumer spending on more discretionary things like premium beverages.
We're even seeing this type of spending remain firm despite plenty of pessimism. Although it's up since May's multi-month low, the University of Michigan's consumer sentiment index is still much nearer last year's multi-year low than it is to its pre-pandemic multi-year high.
That growth is also in spite of the fact that consumers' bills are becoming increasingly problematic. Prices for everything are, on average, 12% higher than they were just two years ago. Meanwhile, U.S. credit card debt reached record-breaking levels last quarter, eclipsing $1 trillion. It comes as no surprise that delinquencies and defaults on these loans are also soaring. The Federal Reserve reports 30-day delinquencies are now at 7.2% of credit card balances, a level not seen since 2012.
Yet, Starbucks North American revenue was up a healthy 11.2% anyway. Just think how strong demand for Starbucks drinks could be when consumers are feeling confident, and have a little extra money in their pocket.
5. Starbucks stock has been underperforming
Last but not least, perhaps the top reason to consider stepping into a new position in Starbucks right now is the stock's relatively poor performance since March, and for that matter since the middle of 2021. It's very un-Starbucks-like, which is why the weakness is arguably not apt to last.
This stock's got a fantastic long-term track record, and though it doesn't do all that well in economic weakness or bear markets, it more than makes up for it in bull markets. That's why you may want to make a point of moving on it sooner than later.
