Stock market pressure could be prolonged by looming fears of a banking crisis and a possible recession. Coca-Cola, Starbucks (SBUX), Chipotle Mexican Grill and other companies with strong brand recognition could be good investments in the face of increased volatility on the stock market. Continue reading.
All three US indexes closed lower on Thursday, as investors grew concerned about the turmoil in banking. Investing in stocks that have a strong brand recognition and command higher prices, as well as more customer loyalty, could be a viable option amid macroeconomic headwinds.
Hence, I recommend stocks that have solid brand recognition, such as The Coca-Cola Company, Starbucks Corporation, and Chipotle Mexican Grill, Inc., which all have higher margins of profit than their peers in the industry. These companies reported solid earnings for their most recent quarter despite the weak economy.
The Federal Reserve raised its benchmark interest rate this week by 0.25 percent to a range of 5%-5.25 percent, its highest level since August 2007.
Wall Street is uneasy despite the fact that this decision was widely anticipated by markets. Concerns over economic growth, and a possible banking crisis, have caused Wall Street to be unsettled. After the announcement, stocks initially rose and Treasury yields fell. However, market volatility made it difficult for stocks to maintain their gains.
House Speaker Kevin McCarthy also recently proposed a bill that would raise the debt ceiling if government spending was cut by 8% in 2012 and its growth capped at 1% per year thereafter.
Mark Zandi, chief economist at Moody's Analytics, has warned however that this proposal will negatively affect the economy. Zandi told the Senate Budget Committee the proposed cuts could lead to 800,000 job losses by 2024.
He also noted that the plan could lower economic growth by 2024 to just 1.61% and increase the probability of a recession.
Check out the stocks listed above:
The Coca-Cola Company
The beverage giant KO produces, markets and sells a variety of non-alcoholic drinks. Its market capitalization is $277.12 Billion.
The EBIT margin for the trailing 12 months of 28.19% at KO is 268.4% greater than the industry average of 7.64%. The 21.04% levered FCF trailing-12 month margin is 614% more than the industry average. The stock's trailing-12 month net income margin is 608.1% greater than the industry average.
KO announced that in its first fiscal quarter, it was collaborating with OpenAI & Bain & Company on ChatGPT & DALL-E. This collaboration will enhance the marketing capabilities of KO and improve business operations by leveraging cutting-edge AI.
In a month after this collaboration, KO released the "Create real magic" platform. This allows users to create original artwork by using creative assets in the Coca-Cola archive. The company is exploring AI's use to improve customer service and ordering as well as creating point-of-sale materials with its bottling partner.
KO's average four-year dividend yield is 3.03%. Its forward annual dividend of 1.84 dollars per share translates into a yield of 2.89% based on the current market price. KO's payouts of dividends have increased at a CAGR 3.4% over the past three years. It is incredible that the company has increased its dividends for 60 consecutive years.
KO's first-quarter fiscal 2023 net operating revenue increased by 4.7% over the previous year to $10.98billion. Gross profit increased by 4.1% over the past year to $6.66 Billion. Net income increased 11.7% to $3.11billion from the prior-year quarter, and non-GAAP earnings per share grew by 5% to $0.68.
Street estimates that KO's EPS for the current quarter, ending in June 2023, will increase by 2.7% and 3.5% respectively. This amounts to $0.72 per share and $11.70billion. The company's earnings surprises are impressive, with each of its last four quarters exceeding consensus estimates for EPS and revenues.
The stock closed the last trading day at $63.72 after gaining 7.5% over the past six-month period.
KO's PoWR Ratings are a reflection of its positive outlook. The stock's overall rating is B, which in our proprietary system translates into a Buy. The POWR ratings are calculated using 118 factors. Each factor is weighted optimally.
It has also been given a B for Sentiment and Quality. KO ranks #15 among 37 stocks in the A-rated beverage industry.
Click here to view the POWR ratings of KO in terms of Growth, Value and Momentum.
Starbucks Corporation (SBUX).
SBUX, along with its subsidiaries, is a specialty coffee roaster, retailer, and marketer in the world. The company is divided into three segments: North America, International and Channel Development. The company's market capitalization is $131.55 Billion.
SBUX's 12-month trailing net income of 10.46%, and its levered FCF Margins of 7.16% are respectively 138.9% and 155.33% higher than industry averages 4.38% and 2,80%. The trailing-12 month EBIT margin is 14.13%, which is 83.4% more than the industry average of 7.70%.
SBUX announced on April 20 that it will launch a new line of coffee beverages, "Oleato", combining SBUS's finest arabica beans with Partanna extra virgin Olive Oil, in more than 60 stores throughout Japan including Starbucks Reserve Roastery Tokyo, by April 20, 2023.
Starbucks' launch of a brand new coffee line could increase its sales and revenues and differentiate it from other competitors.
SBUX announced a cash dividend for the quarter of April 2023 of $0.53 per outstanding share of common stock. The dividend is payable in cash by May 26, 2023.
SBUX has a four-year average yield of 1.89%. Its current annual dividend, $2.12, translates into a yield on current market prices of 1.99%. SBUX has been paying dividends for the past 12 years. Dividend payouts at SBUX have increased by 9.8% CAGR over the last three years, and by 13.2% over five years.
SBUX’s total net revenue grew 14.2% over the previous year to $8.72 Billion for the first fiscal quarter ending April 2, 2023. The company-operated store revenues increased 13.8% to $7.14billion, and the licensed store revenues rose 25.9%.
The non-GAAP operating profit of SBUX increased by 25% over the prior-year quarter, to $1.25 Billion. SBUX's net earnings grew by 34.7% over the past year to $908.30 millions, and its nonGAAP EPS grew 25.4% to $0.74.
Analysts predict that SBUX will increase its revenue by 14.7% to $9.34 Billion in the third fiscal quarter ending June 2023. The company's EPS will increase by 14.6% over the past year to $0.96. In three of the last four quarters the company has exceeded the consensus revenue and EPS estimate. This is an impressive feat.
The stock closed the last trading day at $104.72 after gaining 28.3% in the past six-month period.
SBUX's POWR Ratings reflect its strong fundamentals. Our proprietary rating system equates the stock's B-rating to a Buy.
SBUX is rated B for Momentum. Stability. Sentiment. And Quality. It is ranked 11th out of 46 stocks in the Restaurants sector with an A rating.
Click here to access SBUX ratings on Value and Growth.
Chipotle Mexican Grill, Inc.
CMG operates Chipotle Mexican Grill. The company offers burritos and burrito plates, as well as quesadillas tacos and salads. The company's market is $56.10 billion.
CMG's ROCE, ROTC and ROTA for the 12 months prior to this are 44.74% (14.27%), 14.64% (14.64%), and higher than industry averages of 11.05% (6.34%), and 3.89%.
CMG announced on April 11, 2023 a new design for all-electric restaurants that maximizes energy efficiency, and uses 100% renewable power from wind and sun through certified renewable energy credit. The company already has restaurants in Virginia and Florida with these features and plans to open a third in Colorado this summer.
This new design will enable Chipotle to achieve its scientific targets of reducing greenhouse gas emissions 50% by 2030, compared to the baseline year 2019.
CMG's revenue total increased by 17.2% over the previous year to $2.37 Billion during the first quarter of fiscal 2023. The income from operations of the company increased by 93.3% over the past year to $367.61 millions. Its net income adjusted increased by 80.7% to $291.64 millions.
Its adjusted EPS increased by 84.2% to $10.50.
CMG's earnings per share (EPS) and revenue are expected to grow by 30.8%, 14.2% and $12.16, respectively, over the past year. The company has an impressive track record of earnings surprises, having exceeded its consensus EPS estimate in three out of the last four quarters.
The stock closed the last trading session at 2033.51, up 46.6% on a year-to date basis.
CMG's robust outlook is reflected in its POWR Ratings. The stock is rated B overall, which is equivalent to a Buy according to our proprietary rating system.
It also has a B-grade for Momentum and Sentiment. It is ranked 15th in the Restaurant Industry.
In addition to the above ratings, we have also given CMG ratings for Growth, Value and Stability. All CMG ratings are available here.
This is why Steve Reitmeister, a 40-year investment veteran, has created a timely presentation that includes a trading strategy and his top picks.
KO shares increased $0.02 (+0.03%), in Friday's premarket trading. KO shares have gained 0.86% year-to-date compared to the benchmark S&P 500 index which has risen by 7.19%.
About the Author: Kritika Saarmah
Kritika's passion for writing and interest in risky financial instruments made her an analyst and journalist. She has a bachelor's in commerce, and is currently studying for the CFA. She hopes to identify investment opportunities that are not being explored by investors using her fundamental approach.