We recently compiled a list of the 7 Best Coffee Stocks to Buy Now. In this article, we are going to take a look at where Starbucks Corporation (NASDAQ:SBUX) stands against the other coffee stocks.
Coffee is one of the most widely consumed beverages globally, however, not many investors are bullish on coffee stocks right now as AI seems to be getting all the attention. The coffee market is growing and estimates by Mordor Intelligence valued it at $132.13 billion in 2024. The market is expected to grow to $166.39 billion by 2029, at a compound annual growth rate of 4.72% over the forecast period.
Consumers are currently worried since coffee sellers have predicted that the already high prices will spike even more in the near future. Supply disruptions from Vietnam to Brazil have resulted in high prices for the Arabica and Robusta beans. The reasons behind the surge in prices are diverse. While weather conditions in major coffee bean exporting nations including Brazil and Vietnam have impacted the size and quality of the arabica beans, rising demand in markets such as China also tightened the supply. Considering the fact that Arabica beans are preferred by coffee giants and Robusta beans are best for instant coffee, there is no sense of relief for the end consumers who are paying for their daily dose of coffee.
Prevailing Trends in the Market
As reported by the World Bank, the beverage price index hit a 13-year high in February as a result of the surging prices of Robusta coffee and cocoa. Coffee Arabica and Coffee Robusta prices hit $4.61 and $3.38 per kilogram, respectively. The reaction of the industry to these prices has been diverse. While some suppliers have warned consumers of further price hikes for their products, other coffee chains are finding store closures convenient. The competition for supplies continues to rise as the demand for coffee in non-traditional markets is expanding. While the dynamics of the market have shifted to more online orders or drive-throughs, some critics mention coffee brands have let go of the idea of offering premium customer service in stores.
The real question revolves around what the coffee industry holds for consumers in the future. While many believe that the price hikes will not be so severe, the underlying challenge penetrating coffee-producing regions is climate change and not just bad weather. Although pests and diseases due to heavy rainfall impacted the coffee yield in Brazil, just like the high temperature in Vietnam, the issue is more dense. Considering the fact that such regions can become unusable by 2050 if the circumstances persist, the coffee industry remains under serious threat.
The coffee market may be under pressure but it goes without saying that caffeine is a staple in today’s high-paced world. Whatever challenges persist, products from top coffee companies will continue to be on the shelves of retail stores and in the kitchen cabinets of consumers. Coffee stocks might even be ideal for recession-proofing your portfolio. With that, let’s dive into the 7 best coffee stocks to buy now.
Our Methodology:
In order to compile a list of the 7 best coffee stocks to buy now, we first sifted through ETFs and online rankings to gather a preliminary list of 20 coffee stocks. We then selected the top 7 stocks that had the highest number of hedge fund holders as of March 31. The 7 best coffee stocks to buy now are arranged in ascending order of their number of hedge fund holders, as of the first quarter of 2024. We have also included analysts’ average upside potential for the stocks in our list.
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 best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A barista pouring freshly brewed coffee from an espresso machine to a cup in a bustling cafe.
Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 69
Average Upside Potential as of July 31: 12.02%
Starbucks Corporation (NASDAQ:SBUX) is a popular American chain of coffee houses. The coffee giant started off from a single store in Seattle’s Pike Place Market in 1971 and currently serves as the premier roaster and retailer of specialty coffee globally. With coverage in more than 80 markets around the world, Starbucks offers a wide range of products including coffee, handcrafted beverages, fresh food, and consumer products. Its brand portfolio includes Starbucks Coffee, Teavana, and Ethos Water.
With a name that needs no introduction, Starbucks Corporation (NASDAQ:SBUX) is an already dominant player in the global coffee market and the market share leader in the United States. The company has unlocked an extensive brand reputation for itself by effortlessly delivering a personalized experience in over 36,000 stores globally. The future for the firm’s growth remains bright as it plans to become truly global by expanding at an average of eight stores per day to a network of 55,000 stores by 2030. Alone in the large Chinese market where it has over 6,800 stores in 800 cities, the firm remains on track to run 9,000 stores by 2025. Starbucks Corporation (NASDAQ:SBUX) is also spreading across fast-growing markets such as India, Southeast Asia, and Latin America.
The distinctive experience for customers remains a core strength for Starbucks. Complying with the modern-day needs for convenience, the firm has also shifted from being a public space to a business that thrives more on its mobile app and drive-thru orders. To enable an even better customer experience, the firm has been investing in more purpose-defined stores other than leveraging its tech capabilities of Deep Brew AI and machine learning. Starbucks Corporation (NASDAQ:SBUX) is profitable as it has been capable of growing its revenue by 8.86% and its net income by 39.09% over the last decade. The company’s Reinvention plan which was launched in September 2022 with the goal of accelerating its long-term growth has also produced results through fiscal 2023 with a rise in consolidated net revenues by 12% to a record $36 billion.
In short, Starbucks Corporation (NASDAQ:SBUX) falls among the top coffee stocks to buy now. The company has a lot to offer in terms of a global and resilient brand equity, robust store network, and endless growth opportunities as one of the largest coffee houses in the world. Despite the challenges in the macro environment such as economic volatility impacting customer traffic or lower occasional customers as faced during the recent quarter, the firm is poised to capture a larger market on a global level. The stock was held by 69 hedge funds at the end of the first quarter with stakes worth $2.68 billion. As of March 31, Fisher Asset Management is the largest shareholder in the company with a stake worth $1.06 billion. Analysts are also bullish and see an upside of 12.02%% from current levels.
Diamond Hill Select Strategy 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 1st on our list of the best coffee stocks to buy. You can visit 7 Best Coffee Stocks to Buy Now to see the other coffee stocks that are on hedge funds’ radar. 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.