I just discovered the true "capital of coffee"…
I'm traveling with my wife and two small children in the
Pacific Northwest. We're staying in a city called Kirkland,
Washington - across the lake from Seattle and a few miles west of
Microsoft's headquarters in Redmond. Costco was founded here, and
Google has a growing campus.
The booming local economy can be seen in the housing market,
which I described a couple weeks ago
. It can also be seen at the local
Starbucks (Nasdaq: SBUX)
across the street from my hotel.
A fun fact for coffee lovers: Kirkland has more Starbucks
locations per capita than Seattle, with 13 locations serving
this city of 50,000 people.
The Starbucks here is always flooded with customers. I stopped
by at 7am yesterday to pickup breakfast for my family. Five
customers were ahead of me in line, but I was still served in
less than three minutes. And the place is busy all day
My order including one large coffee, a latte, two bagels,
three juices, and one breakfast sandwich for a grand total of
$20.64. The day before, I ordered a similar room service
breakfast from my hotel for $63. I suspect I'm not the only
guest opting for Starbucks instead of the Continental
But the Starbucks sensation isn't just a Seattle thing, even
though the company was founded here back in 1971. Ever since,
Starbucks has been growing like a weed. It's a true growth stock
success story - the type of legendary growth that most investors
Last Friday Starbucks reported blow out earnings that sent the
shares soaring 10% in just a couple days. For a sizable
company like Starbucks, that huge move added $5 billion to the
The financial results were stellar. Growth was impressive,
with sales up 13%. Equally important, the company exceeded
the all important analyst expectations for revenues and
But there is one metric that's coveted in the restaurant
business. And that's same-store-sales. Sales at locations
that were open more than one year grew by an impressive 8%.
That may not sound good. But in the world of restaurants, this
is considered outstanding. Consider that other big restaurant
chains are having trouble growing at all. McDonalds - a stock
that I currently recommend in my
High Yield Wealth
investment newsletter - saw same store sales grow by only 1% in
the last quarter.
Even one of the fastest growing restaurant chains -
Chipotle Mexican Grill (
- saw same-store-sales increase just 5.5% in the latest quarter.
Noodles & Co. (Nasdaq: NSLD)
The Billion Dollar Noodle Shop
IPO sensation - sales grew only 2.2%.
Starbucks stock has been an outstanding performer. Ever since
its IPO in 1992 at a split-adjusted $8.50, the stock has
consistently performed better than the S&P 500 index.
Shares are up 398% over the last five years, compared with 33%
gains for the S&P 500. That trend has continued in
2013, with shares of SBUX beating the broader market by
That outperformance has translated into a premium valuation -
shares trade at 27x earnings (compared with McDonalds at PE ratio
of 17). But the company's estimated earnings growth of 20%
in 2014 seems to justify the higher valuation.
For income investors, Starbucks isn't a dream stock. The
dividend yield is just 1.2% today. But since 2010 when the
company initiated a dividend, it's been increased by 110%. There
is reason to believe that the increase in the dividend will
continue, and Starbucks could become one of the biggest dividend
growers of the next decade.
However, there is far more to Starbucks than the
dividend. And that's the potential for continued capital
gains. I've owned Starbucks shares in my
account since late 2012. Shares are already up 34%, and I'm
considering buying more.
My opinion is that little by little, the world is becoming
wealthier. While Europe may still be in the dumps,
economies in Asia and the U.S. are growing. As more people
around the globe join the ranks of the middle and upper class,
there will be growing demand for $400 Apple iPhones and $5 Grande
Café Lattes from Starbucks.
As a result, Starbucks will continue to see superior growth
compared to its "fast food rivals" and the stock should continue
to perform handsomely. If you want to bet on growing global
prosperity, this stock is one that I recommend and personally
Full Disclosure: I personally own shares of Starbucks