It's been tough to be a Starbucks (SBUX 0.47%) shareholder lately. The 19% pullback from April's high leaves the stock a frustrating 26% below its 2021 peak, versus the S&P 500's breakeven for that same two-year stretch. Yikes.
Blame the overall environment, mostly. Everything that could be working against Starbucks' business seems to be doing so, ranging from labor turmoil to high costs to general economic malaise. The broad market itself hasn't exactly been firing on all cylinders lately either, leaving Starbucks stock without much of a tailwind.
As time marches on, however, it's becoming clearer that a global recession isn't a foregone conclusion. It's increasingly looking like the global economy will instead experience a so-called "soft landing," easing its way back into economic prosperity. The landing could be so soft, in fact, that we won't even realize it's happening until well after the fact. Ditto for a major market bottom.
Translation: Whether or not we see it right now, a new bull market may be in the offing. If this is the case, there are four overarching reasons to own Starbucks stock now.
1. A rising tide drives discretionary spending
While inflation has certainly played its part in curbing people's spending on discretionary goods, that's not the only headwind blowing against Starbucks' business at this time.
When the stock market is roaring, people feel wealthier. And when the market is struggling (as it has been for some time now), they feel poorer. It matters because people tend to spend based on how they feel, rather than on their actual financial condition. You'll sometimes hear this phenomenon referred to as the "wealth effect."
Regardless of what you call it, with Gallup reporting that more than 60% of Americans now own stocks -– a level not seen since 2008 -- a bull market is bound to spur a few additional splurges on things like premium coffee.
2. The brand name is powerful
If you ask 10 people to name a random coffee shop, odds are good at least nine of them (if not all 10) would name Starbucks.
Part of that collective response can be chalked up to the company's sheer reach. As of early July, the coffee house chain consists of 37,222 locations, with 16,144 of them located in the United States.
Another part of that familiarity, however, is the marketing that's allowed the company to establish this many stores. The brand name and its logo are well-recognized and well-respected all over the world.
Image source: Getty Images.
That's no accident either. The odd name was specifically chosen because of the sound it makes when spoken; words that begin with "st" tend to feel more powerful, and are more likely to get stuck in your mind. Starbucks' green and black circular logo featuring a maritime siren also stands out in a sea of corporate logos. The color green, by the way, spurs feelings of serenity and abundance.
3. (Most) commodity prices are falling
Not every reason to step into Starbucks stock in anticipation of a new bull market is quite as philosophical as the "wealth effect" or the draw of a company's name and logo. That company's prospective fiscal results are just as important.
To this end, Starbucks is a buy right now, because at least one component of its costs is coming down following an inflationary surge suffered a little over a year ago. That's the price of coffee beans themselves. After soaring to multi-year highs in 2021 (largely thanks to supply chain disruptions), the price of coffee now sits 37% below that peak, hitting two-year lows earlier this month.
This isn't Starbucks' single biggest expense. That's actually its store operating costs, most of which is its cost of labor. But the decline in coffee's price serves as a proxy for other costs, ranging from freight to cardboard cups to utility bills. From here, the growing costs of running coffee shops should begin to ebb.
4. The new CEO has his finger on the pulse of the business
After seeing several chief executives come and go since 2016 (with one of them more than once), Starbucks may finally have the leader it needs for the current era in former PepsiCo executive Laxman Narasimhan. He's an outsider to the coffee business. But that's the point -- Narasimhan brings some much-needed fresh perspective to the halls of the company's headquarters.
And he certainly appears to have hit the ground running. He's been working side by side with former and then interim CEO Howard Schultz since he was tapped in September of last year, but took the helm earlier than anticipated when he fully took over in March of this year. In the meantime, he's turned heads by working in-store as a barista, earning his official barista certification.
Narasimhan says he intends to step into this customer-facing role once a month, just to ensure he fully understands what's happening on the proverbial front lines. If nothing else, this might help Narasimhan get a handle on what's really driving the current unionization effort in so many Starbucks stores right now.
More reward than risk
A risk-free pick? No. There's no such thing. Starbucks' key issues right now include the continued unionization of its stores, rekindled supply chain disruptions, lingering economic weakness and/or lingering inflation, and so on -- factors that always affect an organization's bottom line.
On balance, though, a budding bull market keeps the bulk of these risks in check, and simultaneously sets the stage for Starbucks to shine. Premium coffee is one of those niceties that people will treat themselves to even when they won't spend money on new clothes, or when they can't afford the sky-high interest payments on home loans or car loans.
So a little market bullishness could go a long way here in lifting Starbucks stock, particularly if that bullishness is rooted in improving economic conditions.
