We are roughly half way through the latest quarterly earnings season and four of my holdings have reported numbers that should have every investor excited. All four, in my opinion, are strong buys.
Home builder raises the roof
In spite of these impressive numbers, investors have turned a cold shoulder to this and other home builder stocks. The reason? They fear that rising interest rates will bring the housing recovery to a halt. I believe these fears are mostly baseless. Young families have been putting buying a home on the back burner for years and now that they are feeling more secure in their jobs, they will not let slowly rising interest rates deter them any longer. Then there is the pent up demand of young, growing, families ready to buy larger homes and retirees ready to downsize. I do not believe higher interest rates, which are still at historically low rates, will materially hurt the Meritage Homes Corp (NYSE:MTH) Homes and the building industry.
Pecolating profits
The most impressive number this quarter has to be Starbucks Corporation (NASDAQ:SBUX) same store sales gain of 8%. This was turned in while many companies blamed the weather or political turmoil for lackluster sales. There are three primary drivers that should keep same store sales healthy for years to come.
- New store openings. Starbucks Corporation (NASDAQ:SBUX) will be opening approximately 500 stores yearly for the foreseeable future. The company has just scratched the surface in China and India, with the potential for 1,000’s of new store openings to come.
- Teavana, a 2012 acquisition gives Starbucks Corporation (NASDAQ:SBUX) a foothold into the $50 billion worldwide tea market. Management is still trying to find the best format for this division, but with Mr. Schultz’s track record, I am sure they will find a successful format.
- La Boulange, affords the company a means of expanding the average ticket by providing food choices the equal to the coffee being served. Investors should begin to see expanding average tickets growth as La Boulange’s pastries and croissant’s are slowly rolled out to all the stores in the United States.
The Starbucks Corporation (NASDAQ:SBUX) growth story still has plenty of chapters left. If you do not already own some, maybe it is time to give it a look.
Building For Tomorrow
Sales for the quarter rose 22% to $15.7 billion and management is forecasting a 12-24% increase for the third quarter. Earnings came in at a negative $7 million, while analysts were expecting a positive $27.4 million. Content costs and building distribution centers are keeping a lid on profitability.
