1 huge reason to buy stock in Starbucks


Investing in US companies is relatively easy and can open a world of investing possibilities. The US markets have some of the worlds largest, best known brands, a broader range of industries and offers you access to multinational businesses with operations in some of the fastest growing markets in the world.

The importance of that last point cannot be overstated. Not only does it expose investors to the blistering speed of the developing world’s economic growth, but it also insulates stock returns from regional economic downturns like the GFC.

The safest and easiest way to do it is by investing in companies with significant international operations. Of particular interest on that front is Starbucks (Nasdaq: SBUX), the coffee chain that’s spearheading the international coffee revolution.

The promise and perils of investing abroad
The most obvious reason to diversify globally is to gain exposure to the developing world’s economic growth. Over the past decade, emerging markets have expanded much more quickly than the developed world has. South Asian economies, led by India, have more than tripled their output since 2000. And if you take Japan out of the equation, the East Asian economies have done the same, going from US$3.3 trillion in 2000 to US$11.2 trillion in 2010. In fact, North America is the only continent that hasn’t at least doubled its economic output since the turn of the century.

anImage

Source: World Bank.

Global diversification also acts as a hedge against regional economic downturns, a benefit that revealed its advantage in 2009. Triggered by the financial crisis, output in North America and Europe shrank that year by 3.4% and 4.3%, respectively. Yet South Asian economies simultaneously grew 8.1%. And while output in the entire East Asian and Pacific region contracted by approximately 1%, weighed down by Japan’s 6.3% decline, the region’s largest economy in China grew a staggering 9.2%.

These two benefits aside, however, it’s important to remember that investing directly in developing markets is risky. Just recently, for example, a wave of fraud has washed over Chinese small-cap stocks, costing investors billions of dollars. A typical example is Chinese Internet security software maker Qihoo 360, which saw its shares lose more than 20% of their value by the middle of last month because of questionable accounting practices. Even the most sophisticated of investors were caught in the undertow, as famed hedge-fund manager John Paulson purportedly lost more than US$100 million when Chinese forestry company Sino-Forest was revealed to be a fraud.

The best of both worlds
The most effective way to balance the benefits of global diversification without exposing your portfolio to undue risk, in turn, is to invest in companies with global exposure. Undoubtedly one of the best in this regard is Starbucks, the ubiquitous coffee chain from Seattle.

There’s simply no question that Starbucks is the unrequited king of coffee. In many US cities, it seems there’s one on every street corner, and understandably so, as it’s added an average of two stores a day since 1987. While the average Starbucks customer visits a location six times a month, a full 20% of them go every other day. It’s estimated that the company uses 2.3 billion paper cups a year. And its logo is so well recognized that it doesn’t even put its name on those cups anymore. That’s what you call powerful brand recognition.

anImage

Source: Starbucks Investor Relations.

It should accordingly be no surprise that Starbucks has an extensive global footprint. At last count, the coffee chain operates in 55 countries, employs more than 130,000 people, and has approximately 17,420 locations worldwide. Its single largest country-specific presence outside the United States is in Japan, where is has 955 locations. And its biggest international regional presence is in Asia, where it has 3,050 stores and counting. According to CEO Howard Schultz, “The No. 1 opportunity for the entire company is China,” which is slated to become Starbucks’ second largest international market by 2012, at which point it aims to operate more than 1,500 stores, roughly triple the amount now.

It’s this diversification that’s contributed to both the company’s growth and the fantastic performance of its stock price. Despite the Great Recession in the developed world, since 2007, its total revenues have grown a staggering 24%, from US$9.4 billion to nearly US$12 billion in 2011. In the most recent fiscal quarter alone, the company reported an 18.5% quarterly increase in its net income.

And not surprisingly, its stock price has responded in kind. Over the past five years, an investment in Starbucks returned nearly 90% for shareholders, beating the broader market by a whopping 80 percentage points. It’s eviscerated its competitors over the past year: Following its 2011 IPO,  shares in Dunkin’ Brands (Nasdaq: DNKN) are up a comparatively modest 18%, while Green Mountain Coffee Roasters (Nasdaq: GMCR) has seen its share price lose more than 65% of its value amid rumors of financial shenanigans. And both Peet’s Coffee & Tea (Nasdaq: PEET) and Caribou Coffee (Nasdaq: CBOU), while up by double digits, are far behind the twin-tailed siren.

SBUX Total Return Price Chart

SBUX Total Return Price data by YCharts

Foolish bottom line
There’s no question that Starbucks has had problems. At the end of March, for example, Starbucks admitted to using crushed insects as coloring in some of its drinks. Yet its globally diversified operations should serve to both preserve and grow investment capital over the years to come.

If you’re looking in the market for some high yielding ASX shares, look no further than “Secure Your Future with 3 Rock-Solid Dividend Stocks”. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by John Maxfield, originally appeared on fool.com

Taboola Articles

OUR #1 DIVIDEND PICK FOR 2016...

Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.

Enter your email below to discover the name, code and a full investment analysis in our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2016.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.