(Editor's note: What follows below is a brief excerpt from Hedgeye's latest Investing Ideas newsletter which currently features nine top stock ideas from Hedgeye analysts. Each newsletter also features an in-depth look at key macro issues influencing the markets and economy. Click here for additional information.)
SBUX – Restaurants sector head Howard Penney continues to like Starbucks’ growth story. Penney says SBUX’ strong Q3 earnings report merely highlights the power of what he continues to see as one of the best pure plays in global growth in his sector. Cyclical factors, such as what appears to be improving coffee pricing, only add to the momentum as SBUX continues to push into new food and beverage segments worldwide, as evidenced by management’s focus on high-profile partnerships such as Danone and Google.
Penney sees continued strong growth in China, even in the face of slowing Chinese GDP growth, and would not be spooked by poor compares in other restaurant companies’ China operations. Penney acknowledges that SBUX is a “top pick” for many analysts. Would it be counter-intuitive to point out that sometimes consensus is actually right? Penney wouldn’t trade his high conviction call on SBUX for all the coffee in China.
NKE – Nike’s fiscal first quarter draws to a close in just another few weeks. Sales of footwear in the retail channel have been choppy in recent weeks – averaging about 1-2%, though apparel growth has been about 3x what we’re seeing out of footwear, which is a nice offset.
But the big data point we want to watch is Footlocker’s 2Q earnings, which are released on Friday the 23rd of August. The good news is that we think that expectations for Footlocker’s quarter are in check, which is positive because FL’s stock is often a barometer for NKE. After that we think that the near-term calendar lines up well for Nike with its results in late September, and then its analyst meeting in early October.
We would not want to bet against the name before then.