SBUX

1 No-Brainer Stock to Buy With $100 Right Now

The S&P 500 and Nasdaq Composite are in record territory, which might lead investors to think there aren't any solid buying opportunities.

However, some well-known businesses haven't benefited from the broader market's rally. Coffeehouse giant Starbucks (NASDAQ: SBUX) is one of them. Its shares are currently 38% below their all-time high.

Here's why I think it's a no-brainer stock to buy with $100 right now.

Focus on the long term

Starbucks really disappointed its shareholders when it reported fiscal 2024 second-quarter financials on April 30. Revenue came in just shy of $8.6 billion, while diluted earnings per share totaled $0.68. Not only were both of these key headline figures below Wall Street analysts' expectations, but they also both declined year over year. This isn't what investors want to see from an industry giant.

"In a highly challenged environment, this quarter's results do not reflect the power of our brand, our capabilities or the opportunities ahead," CEO Laxman Narasimhan said in the press release.

The struggles weren't specific to any single region. Same-store sales dropped 3% and 11% in the two key markets of the U.S. and China, respectively. Customer traffic was down

It's so easy to get caught up in the short term. But I urge investors to maintain their focus on the next three to five years. Viewed in this light, it's not hard to be a little optimistic about Starbucks' prospects.

The executive team believes that the business can expand its store base by about 40% to 55,000 by 2030. And as part of the "Triple Shot Reinvention" turnaround plan, Starbucks is aiming to boost efficiencies and implement cost cuts. This way, the company can help drive revenue and earnings-per-share gains. For a company that seems ubiquitous, it's nice to know that there are still opportunities to grow.

Competitive strengths

The restaurant sector more broadly -- and the retail coffee niche more specifically -- are incredibly competitive. Consumers have a seemingly unlimited number of choices. And barriers to entry in the industry are nonexistent. Starbucks has been able to stand out among the crowded field because it possesses key competitive strengths.

Not many people would argue with the fact that Starbucks has one of the world's most recognizable brands. Developed over decades, this brand drives customer loyalty and pricing power. The business has created a certain status around its beverages, allowing it to charge high prices for commoditized products. This helps explain Starbucks' trailing-five-year gross margin average of 26%.

This position is bolstered by operating a best-in-class digital platform. There are currently 32.8 million Starbucks rewards members in the U.S., a figure that continues to rise. This gives the leadership team a valuable engagement channel that also helps promote repeat purchase behavior.

Plus, with nearly 39,000 stores worldwide, there aren't many restaurant concepts that have the scale Starbucks does. This means it can better leverage its resources to obtain favorable real estate locations for new stores, attract employees with better perks and benefits, and spend marketing dollars to reach a much wider audience.

Starbucks' brand and scale give me confidence in its staying power over the next decade and beyond.

The right time to buy

As of this writing, shares of Starbucks sit 38% off their peak, a milestone they hit in July 2021. There's a lot of pessimism surrounding the business and its near-term prospects, and that's understandable. Shareholders are worried it will be later rather than sooner that the financials will start to improve.

But for long-term investors -- those that can look out over the next five years -- this is an attractive buying opportunity. The stock trades at a forward price-to-earnings (P/E) ratio of 21.7, which is about the cheapest it has been in at least the past two and a half years.

If you have $100 (or any amount, really) ready to put to work, Starbucks should be a top investment candidate to consider.

Should you invest $1,000 in Starbucks right now?

Before you buy stock in Starbucks, consider this:

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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