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Why Starbucks Is Still a Top Restaurant Stock

Like much of the restaurant industry, Starbucks (NASDAQ: SBUX) ran into some headwinds early in the pandemic, but the company has bounced back vigorously thanks to a strong digital channel, contribution from drive-thru stores, and the ability to adapt its stores to changing needs, including social distancing.

In this segment from The Five, recorded on Sept. 1, Fool.com contributors Jeremy Bowman and Jason Hall discuss why Starbucks looks like a great choice for a recovery stock.

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Jason Hall: Today, we got ADP's payroll report. The largest manager of private payroll services in the US gives us a huge payroll report that's handy. Said that private payrolls rose by 374,000 jobs last month, so in August. Now that was like 40 percent lower than the expectation for 600,000 new jobs. Of course, the vast majority of those jobs were service work, leisure, hospitality industry. I think over 200,000 of those, 374,000 were leisure and hospitality industry jobs. We're not economists, we're not job experts, but we like investing, we like stocks. Let's talk about our favorite hospitality related stocks. Trevor, I'm going to give you a little break and let Jeremy talks and see, he wasn't with us for the whole hour. Jeremy, you get us going here first.

Jeremy Bowman: I just want to make a point too about what you're saying about economists. I think as investors you assume that a good job report is going to send stocks up. It doesn't always work like that based on interest rates and the Fed and all that stuff. That's a tricky one to play. As far as my favorite hospitality stock or what I really like is Starbucks, I think they're almost synonymous with the word hospitality in the restaurant space. I think Howard Schultz, who wasn't technically the founder, but basically founded the company.

Jason Hall: He's the founder, as far as we're concerned he's the fonder.[laughs]

Jeremy Bowman: He should have the title I think, but he bought it when it was like a handful of coffee bean sellers. But he designed it as third-place where you can go in and hang out, whatever you want. I think Starbucks for basically fast food chain, their staff is probably more professional than you might find at a competitor or typical kind of fast food business. I think it's over the long run in the company. I mean, they had a setback during the pandemic like most restaurants chains, but they've recovered well. They've got a long growth runway in China. Their rewards program has been doing really well and creates a competitive advantages and barriers to entry there. I think they've been at the forefront in a lot of the tech stuff we've seen come out with restaurant chains like Chipotle during the pandemic, their mobile app.

Jason Hall: We talked about that digital flywheel, right? That's it.

Jeremy Bowman: Yeah. Exactly. You get the customers hooked on that. It becomes, I mean, coffee caters to a regular customer anywhere, but they make it so easy that even if you might have an independent coffee shop or whenever that you'd like to go to, Starbucks just makes it really easy to just pop in there with that, you just place your order on the app and then stop in and pick it up. I think, certainly, we'll see what happens with the economic recovery going forward. Starbucks is going to be. People going back-to-school and the office and all that, that's good. That's going to be a good thing for them. I think the business should continue doing well.

Jason Hall has no position in any of the stocks mentioned. Jeremy Bowman owns shares of Chipotle Mexican Grill and Starbucks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short October 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.


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