The death of American equities? Not so fast.
'It feels like narratives really got carried away,' BlackRock global chief investment strategist Wei Li tells Semafor. 'There is something really exceptional about US corporates,' Li said, noting that S&P 500 companies overdelivered this earnings season.
HSBC experts similarly noted that a previous surge of investments out of the US and into Europe seems to be slowing. 'We think the 'sell America' story goes too far,' Morgan Stanley's Chief Investment Officer Mike Wilson said.
— Rohan Goswami
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Business Insider
17 minutes ago
- Business Insider
Coffee Giant Starbucks (SBUX) Looks to Rebrew Former Glory
Starbucks (SBUX) has long been—and still is—the go-to name when it comes to coffee shops, known not just for its coffee but also for its global presence, inviting atmosphere, and convenience. Lately, however, the company has lost its way, facing a string of headwinds from rising competition, changing consumer habits, and slowing sales. Don't Miss TipRanks' Half-Year Sale Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence. Make smarter investment decisions with TipRanks' Smart Investor Picks, delivered to your inbox every week. Since these are more structural challenges than temporary bumps, the impact has shown up in the stock, with SBUX underperforming the broader market over the last three to five years, even when factoring in dividends. This has put pressure on management to take real action to bring back the dominant cash cow Starbucks once was. One of the key concerns is that a stretched valuation doesn't typically pair well with a company in the midst of a turnaround. That's why I maintain a Hold rating on Starbucks stock—for now, there's limited evidence that investors are fully convinced by the recovery narrative, and recent results have yet to deliver meaningful progress. In this article, I'll take a closer look at what has led to Starbucks' recent challenges, how the turnaround strategy is progressing, and whether the stock merits further consideration at this stage. Starbucks' Business Under Pressure Starbucks is currently in a turnaround phase, executing a back-to-basics strategy —officially dubbed 'Back to Starbucks'—with a new management team aiming to revitalize the brand and recapture its heyday. For instance, over the past three years, the stock has significantly underperformed the broader market, rising only 28% compared to 69% for the S&P 500. This underperformance stems from several challenges, including increased competition among coffee shops, a weaker market in China (one of Starbucks' largest markets), and a continued decline in comparable store sales. Stores that have been open for more than a year have seen sales drop for four consecutive quarters, signaling a decline in customer traffic. More recently, in the second quarter of 2025, comparable sales declined 1% globally, an improvement from the 4% decline in the previous year. Profitability also took a hit, with operating margins contracting 4.5% over the same period, settling at 8.2%. Meanwhile, Starbucks has been expanding its locations and investing heavily in restructuring. As a result, capital expenditures (CapEx) have grown at a CAGR of 23% over the last three years, while revenues have only increased at a CAGR of 5%. One of the company's key strengths—free cash flow—has also suffered, dropping to $2.7 billion over the past twelve months, well below the $4.5 billion recorded in 2021. This indicates that recent heavy investments still have uncertain returns, and that operational and competitive challenges have become structural issues in the investment thesis. When this happens, unlike typical cyclical headwinds, action is needed rather than business as usual. Starbucks Takes Action The good news for Starbucks bulls is that the company isn't ignoring its current challenges and has been actively working to address them. While the focus remains on getting back to basics, the goal is clear: Starbucks aims to reclaim its reputation as a place of convenience, ambiance, and experience, rather than just another coffee shop vulnerable to local competition. For example, CEO Brian Niccol, hired for his successful track record of taking Chipotle (CMG) to the next level, has been implementing transformative operational changes for nearly a year. These initiatives include slimming down the menu by 30%, reducing reliance on promotions to boost average ticket size, and redesigning and opening stores in smaller formats in the U.S. The market has only partially bought into these changes so far—the stock is up over 23% in the last twelve months, despite a few bumps along the way. However, results are still mixed. In the most recent earnings report, both revenue and earnings fell short of analyst expectations. Over the past six months, the EPS growth outlook for 2025, 2026, and 2027 has been revised downward by approximately 17–18%. Market analyst consensus now expects Starbucks to post annual EPS of $2.99 in 2026 and $3.60 in 2027, up from $2.46 in 2025. As a result, I see the market divided on the latest financial results, with analysts now questioning whether Starbucks can execute its 'back to basics' strategy. Old Vs. New Market Dilemma for SBUX The main question right now is whether the turnaround will occur in a healthy manner or if more pain lies ahead. In my view, the implicit goal is to bring free cash flow back to levels close to 2019 and 2021 (around $3.5 billion to $4.5 billion). This would be driven by an expected return to growth in comparable sales in the U.S. this year and next, supported by store renovations. While CapEx is likely to remain high, over time these investments should boost revenue and margins, gradually driving a recovery in free cash flow. The uncomfortable part is that Starbucks trades at a stretched valuation. While this can be somewhat justified by its strong global brand moat and solid cash flow generation (even if squeezed), the stock currently trades at 38x forward earnings—more than 120% above the industry average and 12% above its own historical average over the past five years. Given that Starbucks is not trading at a discount, using a technical filter—such as waiting for moving average inflections to become clearer signals on whether the turnaround is priced in—can be helpful. Currently, SBUX is a Buy by a narrow margin above the 100-day simple moving average, which stands at $93.30, compared to the current stock price of $93.83. However, it's a Sell based on the 200-day simple moving average, currently at $94.60. I interpret these signals as the market indicating that Starbucks is on the verge of showing that the worst may be behind it, but it hasn't fully confirmed that yet. I would only consider going long if the stock manages to break through and sustain above the 200-day average, which would be a more reliable inflection signal. Is Starbucks a Buy, Sell, or Hold? Analyst sentiment on Starbucks reflects a divided market view. Of the 24 analysts who have issued ratings over the past three months, 13 are bullish while 11 remain neutral. SBUX's average price target is $95.52, suggesting a modest upside of approximately 1.5% from the current share price. Not Quite Ready to Sip That Starbucks Stock Starbucks currently trades at high multiples for a turnaround-mode company, putting significant pressure on the business to deliver better results faster than the market expects. This stretched valuation reduces the margin of safety for investors, increasing the risk if the turnaround execution faces delays or setbacks. From a technical perspective, moving averages—especially the 200-day SMA—serve as key indicators of market confidence in the 'Back to Starbucks' strategy. While there are signs of improvement and growing acceptance of the turnaround thesis, the stock hasn't yet consistently broken through the main long-term moving averages. In my view, a prudent approach is to wait for a sustained break above these technical resistance levels before investing with greater conviction, aiming for better risk-adjusted returns.
Yahoo
3 hours ago
- Yahoo
The jobs report has dashed hopes of a rate cut this summer
Chances of a Fed rate cut this month cratered after the strong June jobs report. The economy added 147,000 jobs in June, way more than economists expected. The Trump administration continued to criticize the Fed chair this week for not lowering rates. Say goodbye to the prospect of a rate cut this summer. Investors have slashed the odds of an interest rate cut from the Federal Reserve this month after data released Thursday indicated the job market was unexpectedly strong in June. The robust jobs report gives the central bank room to keep interest rates elevated, with employment strong and inflation remaining above its 2% target. The report indicated that employers added 147,000 jobs to the economy last month, handily beating expectations of 110,000. In another sign of strength, payrolls for May were revised upward to 144,000, and the overall unemployment rate unexpectedly ticked down to 4.1% from 4.2%. This embedded content is not available in your region. According to the CME FedWatch tool, the perceived chances of the Fed cutting rates by 25 basis points plunged Thursday morning, dropping from a 23.8% chance Wednesday to 6.7% after the release of the jobs report. Markets still see a September rate cut as likely, with odds of about 71% after the jobs report. Stocks moved slightly higher as traders cheered the strong data, but dimmer rate-cut views kept a lid on more pronounced gains. Still, the S&P 500 managed to rise to a fresh intraday record of 6,271. The bigger reaction to the jobs data was in the bond market. This embedded content is not available in your region. Yields jumped on the prospects for the Fed to keep rates higher for longer. The 10-year US Treasury yield jumped 4 basis points to about 4.34%. The yield on the 2-year Treasury, which is the most sensitive to Fed policy, spiked 9 basis points to 3.88%. "The firm June unemployment rate waves the Federal Reserve off the possibility of a July rate cut, which shifts the spotlight to September," Mark Hamrick, a senior economic analyst at Bankrate, wrote in a note. "If businesses keep expanding payrolls like they've done so far this year, the Fed can comfortably sit in 'wait and see' mode at the upcoming policy meeting. Uncertainty around tariffs and trade have apparently not spooked businesses into shedding workers," said Jeffrey Roach, the chief economist at LPL Financial. The report is unlikely to lead to rate cuts this month, which means the Trump administration's withering criticism of Fed Chair Jerome Powell could intensify. Powell has signaled the central bank is comfortable holding interest rates steady while the central bank monitors the path of inflation and any impact from tariffs. This week, Powell said the Fed would have cut rates already were it not for Trump's trade war. Trump, who has harangued Powell to cut rates for years, posted on Truth Social on Wednesday suggesting the Fed chief leave his position. "'Too Late' should resign immediately!!!" Trump wrote, referring to the nickname he has frequently called Powell to express his annoyance at not cutting interest rates earlier. Trump's post also linked to an article detailing a post on X from William Pulte, the FHFA director, who suggested that Congress should investigate Powell. Pulte has criticized Powell for hurting the housing market by keeping rates high. "Like this tweet if you think it's time for Jerome Powell to resign," Pulte said in a separate post Wednesday evening. According to the latest Freddie Mac survey, the 30-year US fixed mortgage rate hovered at about 6.77% last week. Still, Powell looks likely to stand pat on interest rates, even amid escalating political pressure, Bankrate's Hamrick said. "He is determined to serve out the remainder of his term not being swayed by political pressure or blunt criticism from the president," he added. "Indeed, the president's pressure could have the opposite of the intended impact." Others have speculated that Trump's criticism only makes it less likely that Powell will bend and lower rates. Observers say Powell may now be more focused on his legacy of protecting Fed independence. Read the original article on Business Insider Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Business Insider
5 hours ago
- Business Insider
Chris Hohn's TCI Crushes Market with 21% Return
Sir Chris Hohn's The Children's Investment (TCI) Fund has notched a spectacular year with a 21% gain, tripling the S&P 500's comparative return. The activist investor utilizes an extremely concentrated portfolio and held just 10 positions in his last 13F portfolio update. TCI has an average holding period of 23.3 quarters, or about 5.8 years, according to WhaleWisdom. Don't Miss TipRanks' Half-Year Sale Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence. Make smarter investment decisions with TipRanks' Smart Investor Picks, delivered to your inbox every week. TCI's largest position, GE Aerospace (GE), accounts for 22% of its portfolio and has returned 47% year-to-date. Its second-largest position, Microsoft (MSFT), has a 15% allocation and has returned 19% this year. These two companies were the only stocks that TCI bought during the first quarter. What Stocks Does TCI Own? TCI also has significant positions in financial firms Moody's (MCO), Visa (V), and S&P Global (SPGI). Additionally, TCI sees upside in railroad companies Canadian Pacific Kansas City (CP) and Canadian National Railway (CNI). CP has an 8.91% weight while CNI comes in at 5.84%. At the same time, not all of the hedge fund's stocks are winners, as it owns both classes of Google (GOOG) (GOOGL), which are down by about 5% YTD. Head over to TipRanks' TCI Portfolio Page for more information on Chris Hohn and TCI.
