Investing in the brands that people use regularly is a simple and effective way to grow your retirement savings. To give you some ideas, three Motley Fool contributors believe now is a good time to buy shares of Starbucks (NASDAQ:SBUX), Airbnb (NASDAQ: ABNB)And Walt Disney (NYSE: DIS). Let’s learn more about these possibilities.
Buy the dip at Starbucks
John Ballard (Starbucks): Buying shares of industry leaders when they are on sale can pay off in the long run, and the stock market offers a great opportunity to invest in the world’s dominant coffee chain at a discounted price. Starbucks shares are down 17% so far this year, but long-term growth in the coffee market will ultimately benefit this excellent brand.
The stock has underperformed this year due to weak comparable-store sales. Starbucks reported a year-over-year decline in global computer sales in the fiscal second quarter ended in March. The decline was most pronounced in China, where comp sales fell 11%.
The increasing competition, as more coffee brands compete on price, is largely to blame for the weak sales performance. However, instead of competing on price and hurting profits, Starbucks is focusing on leaning on its premium brand positioning to differentiate itself from the rest. This will benefit the company in the long run.
According to Statista, the out-of-home coffee market is expected to grow by 17% and reach a value of $437 billion by 2028. A key benefit for Starbucks is its customer loyalty program, where it had 32.8 million active 90-day members in the most recent quarter, representing a 6% year-over-year increase.
Wall Street analysts expect the company to grow earnings per share by 11.8% over the next few years. With the shares trading at a reasonable price of 22 times this year’s earnings estimates, investors can expect the share price to follow the company’s earnings growth in the coming years.
A new leader in travel
Jennifer Saibil (Airbnb): Airbnb has become a mainstream alternative to hotels and in many ways has turned the entire travel industry on its head. That makes it sticky, and unlike many hyped-up disruptors that have come and gone without much of a trace, Airbnb is joining the ranks of the travel leaders.
Revenue growth slowed from the triple-digit rates in 2022 and part of 2023 as it recovered from the worst of the pandemic, but Airbnb is showing continued relevance and resilience by maintaining double-digit revenue growth. Revenue rose 18% year-over-year in the first quarter of 2024, even as it faced a tough comparison to the strong first quarter of 2023. It is also consistently profitable, with rising net profit and free cash flow. Net income was $264 million with a 12% margin in the first quarter, generating $1.9 billion in free cash flow.
Airbnb operates an asset-light model, meaning it benefits from low-cost growth. Listings were up 15% year-over-year in Q1, and while it spends marketing money to entice new hosts to join the platform, many of the listings come from current hosts who have built lucrative businesses hosting multiple rentals through Airbnb.
It is very difficult for traditional hotel companies to match Airbnb’s model. For example, it was uniquely positioned to take advantage of the recent total solar eclipse, which was best seen in several US cities where there aren’t many hotels. It offers rentals in areas around the world that are otherwise difficult to visit, and it makes it easier and cheaper for visitors who want to rent for several weeks at a time or even live in Airbnb’s rental properties.
It is always looking for new areas to invest in. Recently, it has shifted its focus to its mobile app. It’s launching experiences that ‘drop’ into the app and has just rolled out collaboration tools that allow groups to book together. There are many ways in which it can continue its growth in the near future.
Airbnb is set to report second-quarter results soon, and the stock is already rising on high expectations. Expect it to make a splash with a strong earnings report.
A great brand for a solid price
Jeremy Bowman (Disney): It’s hard to think of a stronger consumer brand than Disney. The name has been synonymous with family entertainment for a century, including animated films, TV, theme parks, live entertainment and consumer products such as toys.
Disney benefits from an unrivaled consumer products market, allowing it to cash in on the same intellectual property over and over again. Additionally, the company has a leading position in sports entertainment thanks to its ownership of ESPN.
That hasn’t been enough to make the stock a winner lately, but that could change quickly. Disney fell in May after its earnings report after saying it expected streaming profits to be weaker in the current quarter, but that’s exactly the kind of sandbagging that can lead to a recovery in next quarter’s results.
While investors seem to be demanding a smoother earnings growth trajectory from the streaming division, they’re missing the bigger picture in Disney’s evolution. The company reported its first-ever direct-to-consumer profit in fiscal Q2 and is forecasting full-year adjusted earnings per share to grow 25% this year. Earnings should continue to grow from there.
Disney has also consistently beaten Wall Street estimates, meaning the stock is likely even cheaper than the price-to-earnings (P/E) ratio of 19 at which it trades based on 2025 estimates.
Now that Disney’s streaming segment is finally turning profitable, earnings growth could accelerate from here as the decline in its linear network division becomes less meaningful. That means investors can expect at least a few years of strong earnings growth for the entertainment giant.
Disney will likely face some challenges in July as the Olympics sap viewers from ESPN and its other channels, but a longer-term view suggests it’s a good time to buy as the price is good and momentum is likely to increase from here.
Should you invest $1,000 in Starbucks now?
Before you buy shares in Starbucks, consider the following:
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Jennifer Saibil has positions in Airbnb and Walt Disney. Jeremy Bowman has positions in Airbnb, Starbucks and Walt Disney. John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Airbnb, Starbucks and Walt Disney. The Motley Fool has a disclosure policy.
3 Top Stocks to Buy in July was originally published by The Motley Fool
