As investors face continued uncertainty in the stock market, a long-term strategy focused on building wealth is a smart approach.
With at least 10 years to invest, investors have an advantage over traders on Wall Street, allowing them to build savings for retirement. Two stocks that could deliver consistent returns and resilience in a recession are McDonald’s and Starbucks.
Decades of Consistent Returns
Despite several bear markets, McDonald’s and Starbucks have been delivering steady returns for several decades. These world-class restaurant operators have a long record of profitable growth, which has driven returns that outperformed the S&P 500 index over the last decade.
McDonald’s: Accelerating the Arches Strategy
McDonald’s has thousands of restaurants in 100 countries, making it difficult to imagine how a brand with such high penetration can keep expanding. However, the company’s revenue has not grown at all over the last decade.
McDonald’s is now beginning to experience the advantages of its “Accelerating the Arches” strategy, which involves increasing the number of its restaurants and enhancing profitability.
McDonald’s reported double-digit growth in U.S. comparable sales in the first quarter, following exceptional growth last year. One area of strength has been digital sales, which now represent nearly 40% of systemwide sales and grew over 30% year over year in the company’s top six markets.
Improving Menu and Increased Guest Count
McDonald’s has been tinkering with its core menu, improving cooking procedures, and the taste perception of its burgers and buns. These improvements have resulted in increased guest count, proving that the changes are resonating with customers.
The market has taken notice of the improved operating performance at the Golden Arches, with the stock climbing 80% over the last five years. Analysts are forecasting growth in earnings per share of about 8.5% per year over the next five years, along with the stock’s above-average dividend yield of 2%.
Starbucks: Strong Growth and Margin Expansion
During the pandemic, Starbucks’ shares have shown a performance similar to McDonald’s, rising 85% over the past five years and currently approaching its all-time high. With the rise in inflation, consumers have shifted their spending from goods to services, with morning coffee being one such essential service that people cannot do without on their way to work.
Starbucks’ impressive top-line growth indicates high demand from consumers, but its profit margin has declined from pre-pandemic levels, where the company regularly reported a net profit margin of over 12%. However, analysts believe that there is ample scope to expand margins, resulting in earnings per share growing at a faster pace than revenue. The consensus among analysts is that earnings will grow at 18% per year over the next five years.
Opportunities for Growth and Modernization
Starbucks has a store presence in many locations, which raises questions about its ability to sustain its high performance.
However, CEO Laxman Narasimhan is optimistic about the brand’s potential for growth, citing the leadership team’s clear understanding of opportunities for margin enhancement, modernization of the business, brand, partner experience, and culture.
Long-Term Rewards and Resilience in a Recession
Investors in McDonald’s and Starbucks can expect to receive two restaurant brands that are showing signs of being resilient in a recession and should deliver more returns for years to come.
Analysts predict both McDonald’s and Starbucks will deliver strong earnings growth in the next five years. Investing in these two restaurant brands could lead to long-term rewards and resilience in a recession.
