Jim Cramer Is Bullish on Starbucks Corporation (NASDAQ:SBUX)
We recently published an article titled, Jim Cramer is Talking About These 12 Stocks. In this article, we are going to take a look at where Starbucks Corporation (NASDAQ:SBUX) stands against the other stocks that Jim Cramer has talked about.
During September 30’s episode of Mad Money, CNBC’s Jim Cramer delved into the previous three months and the market’s events. He identified some positive developments amidst the turbulence in the market.
Cramer highlighted that Dow inched up 17%, the S&P 500 went up 42% while Nasdaq gained 38% during the months. He remarked, “For once, good news was actually good news and interesting.” He went on to say that miracles still happened in the stock market’s third quarter. He pointed out that July, August, and September yielded remarkable returns, even highlighting the typically troublesome month of September, which saw the broader market rising significantly.
Cramer elaborated on the lead-up to the Federal Reserve’s decision to cut rates by 50 basis points. He characterized the economic landscape as having “no landing at all,” explaining that the economy continued to grow, inflation decreased, and unemployment ticked up. He suggested that the central bank laid the groundwork for a significant rate cut, which was the reason that there was no panic on Wall Street after the cut. The former hedge fund manager also praised Federal Reserve Chair Jerome Powell for achieving the challenging feat of a double rate cut without shocking the markets.
Moving on, Cramer talked about how the market’s breadth expanded as well, with many sectors gaining traction beyond the dominant Magnificent Seven tech stocks. He noted that a variety of industries, including banks, utilities, retail, healthcare, housing, and transportation, enjoyed their moment in the spotlight.
As for the upcoming election, he referenced Michael Cembalest of J.P. Morgan Asset Management, who described it as “the most polarized election in 100 years.” Cramer observed that, despite the political drama surrounding the elections, Wall Street remained largely unfazed, even in response to significant events like Vice President Kamala Harris potentially replacing President Biden on the Democratic ticket and the attempted assassination of former President Donald Trump.
Cramer also highlighted a shift in the housing market, pointing out the first signs of relief from formerly soaring inflation figures. He suggested that an increase in available homes could be the breakthrough needed to address this intractable asset class that has resisted price declines.
In terms of international markets, he noted that the Chinese market staged a rally, even in light of dismal economic news, owing some of this movement to government-ordered buybacks and influxes of capital.
Cramer commented on the ongoing speculation about stagflation, particularly concerning oil prices, reminiscent of the oil crisis in 1973. He addressed the ongoing conflict in the Middle East, mentioning that Saudi Arabia had abandoned its unofficial price target of $100 per barrel in favor of increasing production.
While many believe that oil prices could soar at any moment, Cramer expressed skepticism, suggesting that although a spike could still occur due to geopolitical factors, he thinks those fears may be overstated.
Reflecting on the past nine months, he concluded that despite the potential for stagflation, 2024 has surprisingly turned out to be a great year for the stock market, defying expectations.
Our Methodology
For this article, we compiled a list of 12 stocks that Jim Cramer mentioned during his episode of Mad Money on September 30. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Jim Cramer Is A Bull on Starbucks Corporation (NASDAQ:SBUX)
Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 70
Starbucks Corporation (NASDAQ:SBUX) is a global leader in coffee roasting, marketing, and retailing. The company’s stores offer a wide variety of products, including coffee and tea beverages, whole and ground beans, single-serve options, ready-to-drink beverages, and an array of food items such as pastries, breakfast sandwiches, and lunch offerings.
Cramer is an SBUX bull because of the new CEO. Recently, Brian Niccol took the helm at the company. It was a transition from his successful tenure as CEO of Chipotle, where he played a crucial role in revitalizing the brand after a health crisis. Niccol’s expertise in marketing and store operations could be vital for navigating the current challenges the company faces.
Cramer highlighted the contrasting perspectives from analysts following a recent downgrade by Jefferies and an upgrade from Bernstein. On September 24, Jefferies downgraded the stock to Underperform from Hold with a price target of $76, down from $80. The analysts expressed concerns that its business recovery will require time and could incur significant costs, potentially impacting short-term earnings.
Conversely, on September 26, Bernstein upgraded Starbucks (NASDAQ:SBUX) to Outperform from Market Perform with a price target of $115 from $92. The analysts are optimistic about the company’s new leadership and believe that even without a complete turnaround, the stock could still perform well due to long-term growth potential.
“Like the bulls at Bernstein, I’m willing to look through a weak year if it means Starbucks can come out the other side much stronger, and I believe Brian Niccol can pull that off,” Cramer said.
During its fiscal Q3 earnings call, management emphasized a strong focus on improving operational execution across nearly 10,000 U.S. company-operated stores, viewing this as essential to the company’s immediate strategy.
Currently, the company operates 39,477 locations globally, with aspirations for significant expansion. By 2030, the company aims to increase its footprint to 55,000 stores and emphasizes growing its presence in China. Additionally, executives plan to expand in the U.S., increasing the number of stores from 16,730 to 20,000 over the long term.
In September, China’s central bank introduced a comprehensive set of measures designed to stimulate the struggling economy. Pan Gongsheng, the Governor of the People’s Bank of China (PBOC), revealed plans to reduce borrowing costs and give the green signal to banks to expand their lending activities.
He mentioned that the central bank would decrease the reserve requirements for banks. Additionally, measures aimed at revitalizing the troubled property market include lowering interest rates on existing mortgages and reducing the minimum down payment for all types of homes to 15%.
While highlighting that China is Starbucks’ (NASDAQ:SBUX) second-largest market, Cramer noted that these developments should lead to a stronger economy and improved business prospects for companies like Starbucks, which have significant exposure to China and have faced competition from lower-priced alternatives.
Diamond Hill Capital stated the following regarding Starbucks Corporation (NASDAQ:SBUX) in its Q2 2024 investor letter:
“Starbucks Corporation (NASDAQ:SBUX) is the global leader in the coffee industry. Given its significant scale, we believe Starbucks can maintain its average ticket growth and drive decent traffic growth, which should allow for some margin expansion. While macroeconomic and competitive pressures remain intense in China, the country accounts for a minimal percentage of today’s earnings, and we believe the current valuation embeds little to no contribution from China over the long term, which we view as too cynical. As the share price declined recently amid near-term concerns surrounding store sales in North America and China, we capitalized on what we considered an attractive entry point.”
Overall, SBUX ranks 3rd on our list of stocks Jim Cramer is talking about. While we acknowledge the potential of SBUX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SBUX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.