You don't see setups like this often…

A Rare Oversold Opportunity to Pounce on Today By Lucas Downey, Contributing Editor, TradeSmith Daily It isn’t often that you’ll find deeply oversold opportunities in quality companies near market all-time highs. So, when it comes along, don’t stare… Prepare. As earnings season comes to a close, arguably the biggest downside surprise is Starbucks Corp. (SBUX). The stock is off 18% since the report at the start of the month. But should we run away from SBUX? Is the world’s most popular coffee shop chain finished? No… In fact, I believe it’s shaping up to be a fantastic medium-to-long-term opportunity (disclosure: I’ve been a SBUX shareholder for years). Many of you may say I’m crazy for such a bold statement given the coffee giant brewed up one of its ugliest earnings reports in recent memory: Sales declined 1.8% from a year earlier Full-year 2024 guidance was lowered The company also mentioned a fall-off in traffic from occasional customers I get it... it’s not a pretty picture. But as I like to say over and over again – if you focus solely on today, you’re undoubtedly going to miss what’s coming tomorrow. We don’t have a crystal ball here at TradeSmith. But we have something better. Powerful, tangible, historical analysis. Today I’ll serve up three data-driven reasons why I see SBUX as the most deeply oversold opportunity in years. Grab a cup of joe... let’s study this grande setup. RECOMMENDED LINK This is what terrifies me about A.I. For 40 years, I've been known as one of the world's most bullish (and successful) investors. Forbes even referred to me a "perma bull"... But I just shocked the world by issuing a massive bear warning about A.I. stocks. My models tell me big trouble is coming. When this A.I. crash is over, I believe many will lose everything. I recently recorded an urgent video to share my research and show you how to prepare. See my new video here Starbucks (SBUX) Stock Has Lost its Way They say the trend is your friend. Investors seeking stocks to buy should always look for those in uptrends – stocks climbing month after month. Though lately, Starbucks shares have been grinding lower and lower seemingly day after day. That’s the nightmare scenario that most traders try to avoid. This one-year chart shows how the stock recently reached its weakest relative performance versus the S&P 500. Over the past 52 weeks, the S&P 500 has ripped 25% while SBUX has declined 32%: One glance at this chart would tell most investors to avoid this company at all costs...but as I’ll show you, I believe that’s a grave mistake. Sometimes the greatest investments come when the crowd is least interested. And when stocks reach extreme oversold conditions, they can signal glorious upside potential. Let’s now dive into those reasons why Starbucks, in my eyes, is one of the most compelling investments for the next year… 3 Powerful Reasons to Bet on Big Upside from Starbucks So often a stock’s price reflects the here and now. It doesn’t look at fundamental factors, which can signal a completely different picture unfolding. The first reason you’ll want to consider dipping your toes in Starbucks stock is simple: The company has a rich history of being shareholder-friendly. Reason No 1: Starbucks Has a History of Share Buybacks When I dive into a company’s situation, I first check on what they do with their cash. After R&D, companies typically have four ways to use cash: Service debt Issue dividends Buy back shares Or simply build up more cash by holding it in Treasurys One of my favorite shareholder-friendly metrics that a cash-generating enterprise can employ is share buybacks. Continuously lowering the share count not only boosts earnings per share, but it lets investors know that the company is prioritizing shareholder value. Over the past 10 years, Starbucks has reduced its share count by 24%, with 2014’s count totaling 1.5 billion and recently falling to 1.13 billion: While this metric is never enough to give us the green light, it’ll come in handy down the road once the share price recovers. And I firmly believe it will, in spades. Because the next two signal studies suggest monster upside is coming. Reason No. 2: Starbucks Has Reached One of the Cheapest Valuations in Years No one wants to catch a falling knife... But once it harmlessly hits the ground, it’s easy to pick up. When we study Starbucks’ forward price-to-earnings ratio, you’ll see that it’s fallen to a historically low level that rarely gets this cheap. As of Friday, SBUX sported a next 12-month (NTM) P/E of 18.66. You’d have to go back to summer of 2018 to get a similar level. But here’s why knowing this is so critical… Going back 20 years, whenever SBUX shares are trading at a forward P/E of 19 or lower, the forward performance is utterly fantastic. Using weekly data, I found 98 prior instances where Starbucks traded with a forward P/E of 19 or less. Here are the results: 6 months later, shares gain 21.4% 12 months later, they caffeinate to the tune of 53.2% gains Be bold and 24 months later, you’re staring at an average rip of 127.4% This is venti-sized performance: If you’re not getting excited about this setup, I’ve got one more massive signal glaring – one that income investors will salivate over. RECOMMENDED LINK The Best AI Projects are Cryptos A new set of AI upstarts are rising... Except you won't find them on the stock market. You see, the very best AI projects... The moonshots with a chance at 100X gains or more... Are not small cap stocks. They're cryptos. I've found one AI Coin that stands out above all others. Reason No. 3: Starbucks Now Offers a Large Dividend Yield You guys know I’m all about dividends. Less than a month ago I highlighted another one of my favorite opportunities I’ve owned for years, Nike. Shares were beat to a pulp and the yield reached a level that signaled big upside. Using that same playbook, Starbucks is also screaming a buy signal. Below you’ll find that SBUX currently sports a 3.12% forward yield. This is 50% larger than the 10-year average of 2.02%: But here’s why this is so exciting. It’s ultra-rare for this stalwart to get a yield this high. In fact, using weekly data going back 20 years, 2018, 2020, and 2022 were the only other periods where the forward yield got above 2.75%. Here’s why this is important. The forward return when SBUX yields 2.75% or more has been a massive bullish tailwind for the stock: 3 months later, the stock pops 22.4% on average 6 months later, it jolts 36.2% on average 12 months later, is a 74.3% average gain This right here is what excites me the most for this unloved beauty: Look… Without question, SBUX is a risky play right now. But when you consider that management focuses on shareholder value with share buybacks... and that valuations rarely get this cheap... then you throw in that a 3%+ dividend yield is on the table – I see an outsized opportunity. While talking heads tell you to steer clear of Starbucks because of the current picture, just know that there’s powerful historical evidence suggesting the opposite. This is why powerful data can only enhance your trading and investing gameplan. And TradeSmith is all about bringing you opportunities where you least expect it... driven by cold-hard data. Stay tuned to TradeSmith Daily for more… Regards, Lucas Downey Contributing Editor, TradeSmith Daily P.S. If you’re a trader, you need to see this. Masters in Trading founder and veteran CBOE market maker Jonathan Rose just launched an incredible new trading community. For a limited time, he’s accepting new members. This is entirely different from any newsletter subscription you might be familiar with. Because in addition to the world-class trading research and recommendations… joining Masters in Trading means being part of a like-minded community of other traders to help you along your journey. From what I’ve seen, that alone is worth the price of admission. But remember, you’re getting access to the time-tested techniques that helped Jonathan Rose and his followers go 7 for 7 on a hot streak of trades that paid out 125% each, on average. Jonathan talked about how he was able to accomplish this, why his experience as a market maker was so key, and how he built a community out of this discovery, in a special webinar earlier this week. Check it out here while it’s still online. Get Instant Access Click to read these free reports and automatically sign up for research throughout the week. 25 Doomed Blue Chip Stocks 3 Stocks to Build Your Wealth in 2024 5 Unapologetically Profitable Stocks for 2024 Customer Support: 866.385.2076 |  support@tradesmith.com Request Customer Service ©TradeSmith, LLC. All Rights Reserved. You may not reproduce, modify, copy, sell, publish, distribute, display or otherwise use any portion of the content without the prior written consent of TradeSmith. TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. 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