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Coming Back to the Consistency of Starbucks

John Jagerson and Wade Hansen

To receive further updates on this Starbucks (NASDAQ:SBUX) trade as well as an alert when it’s time to take profits, sign up for a risk-free trial of Strategic Trader today.

After rallying last week, the S&P 500 gapped lower yesterday morning. The index closed just above 2,840, which is slightly lower than last Friday’s close.

There are a number of fundamental factors we could point to that could explain the decline.

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Traders are still nervous about trade tensions and higher tariffs between the United States and China. Traders are wondering where the good news that could potentially spark a rally is going to come from now that 92% of the S&P 500 companies have reported their first quarter earnings. Traders are concerned tensions between the United States and Iran could escalate.

So what do all of these concerns have in common? They highlight the uncertainty traders are dealing with, and uncertainty typically leads to volatility on Wall Street.

In times like these, we like to find as much certainty as we can by placing trades on stocks that have proven themselves to be consistent winners — like Starbucks (NASDAQ:SBUX). Selling puts against SBUX has been an effective strategy for us in 2019, and we’re coming back to this stock for another round of income.

Solid Fundamental Performance

Just as every Starbucks barista is guaranteed to misspell your name while serving you a consistent product across the county, SBUX has been a consistent bullish winner for the past year.

SBUX’s solid stock performance has been driven by the company’s solid fundamental performance. Sales and active participation in Starbucks Rewards are increasing in America, and operating margins increased by 80 basis points — or 0.80% — in the region last quarter. Management also expects to open more than 2,000 new stores this year and for global comparable sales growth to increase by 3-4%.

Uninterrupted Uptrend

If  we turn to SBUX’s daily chart, we see its uptrend has been virtually uninterrupted. Even when the rest of the S&P 500 was pulling back into a bear market in late 2018, SBUX was able to hold its own. It only dropped 12% while the S&P 500 dropped 20%. Since then, the stock has gone on to form new 52-week highs during each month of 2019 so far.

Daily Chart of Starbucks (SBUX) — Chart Source: TradingView

We are looking for traders to continue rewarding SBUX for its solid, consistent fundamental performance with a continuation of the stock’s current long-term uptrend.

However, because the market is volatile right now, we don’t want to go too far out with our trade. We’ve successfully sold seven put writes on SBUX in 2019, making this our eighth. If the stock continues to rise, we’ll look for an opportunity to buy this put write back at a lower price, lock in our gains and roll out the trade.

To find out which SBUX puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today. 

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.

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