Is Starbucks Corporation (SBUX) A Good Stock To Buy?

Most retail investors might have trouble finding high-potential stocks, which is not necessarily surprising considering that there are thousands of stocks available in the market. It is of crucial importance that investors understand what their goals are and what kind of stocks they are looking for. There are numerous stock selection strategies that retail investors can use to find good stocks, one of which involves seeking for stocks that land on the new-high list. Retail investors are advised to construct a list of high performers and buy some of those performance on short-term weakness, but this stock selection approach appears to be more suitable for short term-oriented investors. A more appropriate stock selection approach for long term-oriented investors would be to examine the basket of most-favored stocks among hedge fund vehicles. Investors should primarily seek for small-cap stocks that receive strong attention from the smart money industry, as well as their high-conviction ideas in the large- and mid-cap space. That being said, let’s take a closer look at the hedge fund sentiment that surrounds Starbucks Corporation (NASDAQ:SBUX).

Is Starbucks Corporation (NASDAQ:SBUX) the right investment to pursue these days? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets improved by 7 recently. SBUX was in 61 hedge funds’ portfolios at the end of the fourth quarter of 2015. There were 54 hedge funds in our database with SBUX positions at the end of the previous quarter. At the end of this article we will also compare SBUX to other stocks including Kraft Heinz Co (NASDAQ:KHC), Schlumberger Limited. (NYSE:SLB), and Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU) to get a better sense of its popularity.

If you’d ask most stock holders, hedge funds are perceived as unimportant, outdated financial vehicles of the past. While there are more than 8000 funds trading today, Our researchers hone in on the leaders of this group, about 700 funds. These money managers watch over the lion’s share of all hedge funds’ total capital, and by shadowing their finest picks, Insider Monkey has identified a few investment strategies that have historically outpaced the market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Starbucks Corporation (NASDAQ:SBUX) has seen its shares advance by 25% over the past 52 weeks, though they are 3% in the red year-to-date due to concerns over a slowing global economy. Earlier this year, the leading provider in coffee released its financial results for the first quarter of fiscal 2016 that ended December 27, positing total net revenue of $5.37 billion for the quarter. This marked an increase of approximately 12% year-on-year, which was mainly driven by global comparable store sales growth of 8% and revenues from 1,693 net new store openings in the past year. More importantly, Starbucks anticipates a revenue growth rate that would exceed 10% for fiscal 2016, as comparable store sales are expected to grow slightly above mid-single digits. The addition of roughly 1,800 net new stores will also drive up the company’s top-line growth in fiscal 2016. Roughly 50% of the company’s anticipated new stores will be opened in the China/Asia Pacific market, approximately 40% in the Americas market and 10% in the EMEA market. It is important to note that the specialty coffee retailer launched the Mobile Order and Pay platform a few years ago, which has turned out to serve as an additional driver of revenue growth. This service enables Starbucks customers to place orders and pay for them without having to wait in line and is anticipated to increase in-store transactions, as well as strengthen the company’s margins.

Now, let’s take a look at the key action surrounding Starbucks Corporation (NASDAQ:SBUX) and also discuss the latest developments surrounding the company.

At the end of February 2016, Starbucks Corporation (NASDAQ:SBUX) announced its plans to open the first Starbucks store in Italy in early 2017. Italy is the fourth-largest economy on the European continent and represents a key market for Starbucks, especially considering the country’s strong affinity for coffee. Although the Italian coffee culture is exclusive and unique, Starbucks may be very appealing among young customers accustomed with the brand. It remains to see how the country of coffee will greet the widely-known Starbucks brand, but this movie shows that Starbucks is ready for the challenges and well-prepared to establish its brand in this country despite facing enormous competition.

How have hedgies been trading Starbucks Corporation (NASDAQ:SBUX)?

Heading into 2016, a total of 61 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 13% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Starbucks Corporation (NASDAQ:SBUX). Arrowstreet Capital has a $430.9 million position in the stock, comprising 2% of its 13F portfolio. Coming in second is Columbus Circle Investors holding a $209.9 million position; 1.7% of its 13F portfolio is allocated to the stock. Other peers that hold long positions consist of Phill Gross and Robert Atchinson’s Adage Capital Management, John Burbank’s Passport Capital and Jim Simons’s Renaissance Technologies.

Consequently, key hedge funds have jumped into Starbucks Corporation (NASDAQ:SBUX) headfirst. Jim Simons’ Renaissance Technologies established the most outsized position in Starbucks Corporation (NASDAQ:SBUX). Renaissance Technologies had $83.2 million invested in the company at the end of the fourth quarter. Israel Englander’s Millennium Management also made a $49.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Gregory Thomas’s Carbonado Capital, and Solomon Kumin’s Folger Hill Asset Management.

In the final page of this article, we discuss the hedge fund activity in several other companies that have market capitalizations similar to the one of Starbucks.

Let’s check out hedge fund activity in other stocks similar to Starbucks Corporation (NASDAQ:SBUX). These stocks are Kraft Heinz Co (NASDAQ:KHC), Schlumberger Limited. (NYSE:SLB), Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU), and AstraZeneca plc (ADR) (NYSE:AZN). This group of stocks’ market caps are closest to SBUX’s market cap.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $7.15 billion. That figure was $1.80 billion in SBUX’s case. Kraft Heinz Co (NASDAQ:KHC) is the most popular stock in this table. On the other hand Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks, Starbucks Corporation (NASDAQ:SBUX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None