I pitched Global Payments in a recent interview; Lloyd Khaner's latest thoughts on Starbucks; Slowing growth at Chipotle Mexican Grill; Supreme Court hearing on President Donald Trump's tariffs; My thoughts on the New York City mayoral election
1) I did a 64-minute interview with my friends James Early, Enrique Abeyta, and George Noble last week...
In it, we discussed a range of topics – including our market overviews, artificial intelligence, international markets, and prospects for small-cap and value stocks.
At the end, we each shared our favorite idea.
George said to avoid Tesla (TSLA)... Enrique likes Talen Energy (TLN)... and I pitched Global Payments (GPN), which you can watch in this four-minute clip (I also discussed it in my October 28 e-mail).
You can check out the full interview here:
Enjoy!
2) I continue to follow coffee giant Starbucks (SBUX)...
The company is in the midst of a turnaround effort led by new CEO Brian Niccol, whom it poached from Chipotle Mexican Grill (CMG) in August 2024.
Last week, Starbucks reported fiscal fourth-quarter earnings. These were in line with expectations, so the stock barely budged.
Year over year, revenues grew 5%... same-store sales ticked up 1%... and adjusted operating margin contracted by 0.5% to 9.4%, which resulted in adjusted earnings per share dropping 35%.
Frankly, I wasn't impressed with the report. But I'm not an expert on the company... so for a deeper dive, I turned to someone who is – my friend Lloyd Khaner of Khaner Capital.
Lloyd has been kind enough to share his insights with my readers many times (see archive here). Here's what he had to say after reviewing Starbucks' latest earnings report:
Everyone is asking: Are we there yet in terms of the turnaround?
My answer: Not quite – just a little bit more.
Niccol continues to execute flawlessly on the textbook restaurant turnaround playbook. Sales have just started to inflect positively, with transaction counts growing and same-store sales up for the first time in six quarters. And it's not just happening in the United States, but in many other parts of the world, including the giant market in China. So sales growth is back and now we wait for profitability to improve, which I expect to happen during the coming fiscal year.
Turning to operations, Lloyd notes:
Critically important is that their Green Apron Service program to improve the in-store customer experience is working, and product quality is improving. This renewed focus is bringing back the magic that made Starbucks special for so many years.
Regarding pricing, Lloyd comments:
Most importantly, value is the core focus of the back-to-Starbucks plan. Value means that you're paying a good price for a great product. Starbucks had lost this combination, but now has gotten it back.
During their quarterly conference call last week, it was clear to me that Starbucks will continue to focus on value and the value scores they receive and will not allow the price of their product to hurt the value proposition they offer.
The company is sending a direct shot across the bow of all of its competitors that it will be price competitive – and even price aggressive if need be. So Starbucks continues to improve every aspect of their business that they can control.
But what about what Starbucks can't control? Here's Lloyd's response to that:
Agreed, they can't control the price of coffee beans or the fact that many consumers right now feel a bit pinched and may be cutting back. But I see these two factors improving next year, which would coincide with Starbucks' operations improving at the same time – a very positive, potent combination for sure.
So when might it be time to buy the stock? This is what Lloyd says:
Mark your calendars for late January 2026 – that's when Starbucks will hold an investor day that lays out their financial expectations and vision for the coming year and beyond. I'm waiting until then before making a decision. But I'm getting very close to pulling the trigger, very, very close...
Thank you as always, Lloyd!
I agree that it's too soon to buy the stock for the reasons he cites – and also because of valuation...
Starbucks is trading near a 52-week low. But at yesterday's closing price of $82.88 per share, it's still trading at a rich multiple of 33.7 times next year's earnings.
At that multiple, I like Amazon (AMZN) much better – as I discussed in yesterday's e-mail.
To be clear, Starbucks is a great business. And Niccol is an outstanding CEO.
But given the uncertainty of the turnaround and the reality of rising competition (a recent Wall Street Journal article argues that Starbucks doesn't own the "future of coffee"), I would want a margin of safety with the stock.
At our flagship Stansberry's Investment Advisory newsletter, my team and I continue to follow Starbucks. And if we decide the stock becomes compelling enough to add to the model portfolio, subscribers will be the first to know.
If you aren't already an Investment Advisory subscriber, you can find out how to become one – and learn how to gain instant access to our full portfolio of open recommendations – as part of a special presentation here.
3) To understand the perils of overpaying for even a great company, look no further than Niccol's former employer, Chipotle...
When he left, I took a look at the company in my August 14, 2024 e-mail. As I concluded:
The problem is valuation. The stock is another beneficiary of the "quality bubble" I wrote about [on August 13]...
On a price-to-earnings (P/E) basis, it trades at just more than 47 times this year's consensus analysts' estimates of $1.09 per share.
Chipotle is a great company, but the stock's current sales and earnings multiples are ridiculous. I'd argue that 25 times this year's earnings would be a fair multiple, so I have no interest in the stock while it's anywhere close to these levels.
Since then, the stock has crashed by about 38%... while the S&P 500 has risen roughly 25%.
So... what happened?
Nothing dramatic – revenues and profits are still growing (see last week's third-quarter earnings report here).
But growth has slowed as customers, especially younger ones, are feeling pinched (see this WSJ article on how the company's bet on younger folks is "unraveling").
And when this happens to a stock trading at 47 times earnings, look out below!
4) The Supreme Court yesterday held a three-hour hearing on the case challenging most of President Donald Trump's tariffs. And as the WSJ reports, the justices seem to be skeptical of them. Here's an excerpt from the article:
The nine justices are weighing whether the president lawfully invoked his authority under the International Emergency Economic Powers Act to levy the global tariffs without Congress's approval, as well as a set of tariffs on Canada, China and Mexico related to fentanyl...
What's at stake: If the court overturns the tariffs, the Trump administration has warned it will need to repay tens of billions of dollars it has already collected. It will also undercut a core legal justification for a large chunk of Trump's tariffs and potentially remove leverage in trade talks.
What's next: While a decision isn't expected immediately, questioning during the argument suggested that the tariffs may not survive the challenge – which would force the Trump administration to rely on other authorities to deploy levies on a similar scale.
During the hearing, the real-money bettors on Polymarket reduced the odds that the Court would rule in favor of Trump's tariffs from 38% to 25%, as you can see in this chart from the website:
I'm not expressing a political opinion on whether Trump's tariffs – and whether the Court affirms or rejects them – are good or bad for America.
But I'll note that, in light of the nearly 20% market "flash crash" in April after Trump announced his tariff plans, markets would likely respond favorably to a Court ruling against them. This is one more reason I remain constructive on stocks.
5) Given that I ran for mayor of New York City earlier this year, I eagerly awaited the election results on Tuesday night.
To nobody's surprise, 34-year-old Democratic Socialist Zohran Mamdani won... despite my best efforts to stop him.
I have to tip my hat to Mamdani. He has a true political talent and ran a brilliant campaign.
Mamdani correctly identified affordability as the No. 1 issue for most New Yorkers. And he developed a set of simple (I would say simplistic) slogans to address it (freeze the rent... fast, free buses, city-owned grocery stores... free universal childcare... etc.).
Plus, he stayed on message over the past year.
Most of my concerns about Mamdani's inexperience and policy positions remain. But I'm an optimist by nature, and I want the best for my city. So I hope Mamdani rises to the occasion and far exceeds my expectations.
His commitment to keeping Police Commissioner Jessica Tisch is an important step in that direction.
And no matter what, I'm bullish on New York City.
When I decided to run for mayor a year ago, I thought my beloved city was rapidly going to hell in a bucket...
But that changed after being on the campaign trail for seven months.
I spent time in every corner of the city – meeting thousands of citizens, visiting hundreds of businesses, and learning about every issue, challenge, and opportunity.
It gave me an even greater appreciation for how diverse, wealthy, dynamic, entrepreneurial, and absolutely unique New York City is.
It's truly the greatest city on earth. So I'm never leaving – and I'm delighted that my three daughters (all in their 20s) are building their careers and lives here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.