Consumers are the heartbeat of the U.S. economy; their spending accounts for over 68% of America’s economic output. Following all that money can lead you to some remarkable long-term investment ideas, and they’re often brands you know and love.
These companies have years of growth and dividends on their resume, but have slipped due to fears that consumer spending is fading. High inflation is taking a toll on consumers, who are tightening their budgets and scrutinizing the dollars they spend.
Since consumers should eventually bounce back, it could be wise to scoop up these proven winners while they are on sale.
Here are four of them.
A total investment of $600 will buy you a share of each. Buy, hold, and enjoy long-term growth, world-class brand power, and steadily growing dividends.
1. Starbucks
The coffee giant has amassed over 38,000 stores worldwide on its way to market-beating investment returns. However, Starbucks (NASDAQ: SBUX) is facing some questions about its growth prospects. Consumers have seemingly rebelled against soaring menu prices, and competition has stepped up to challenge Starbucks in China. Shares now trade at a price-to-earnings ratio (P/E) of 20, well off its 10-year average of 43.
Starbucks continues to open stores, and analysts still believe the company’s earnings will compound at over 12% annually for the next three to five years. While some people may be holding back from buying premium coffee, it seems like a stretch to say the brand has lost its luster. Starbucks now offers a starting dividend yield of 3%, and the company has raised its payout for 14 consecutive years. The sell-off seems way overdone at this point.
2. Nike
Apparel giant Nike (NYSE: NKE) is another winner accused of losing its edge on the field. The stock plummeted after the company guided for a 10% drop in sales next quarter. The company is scrambling to reinvent itself in response to pressure from smaller competitors that have chipped away at its dominance in certain product categories. However, this doesn’t change the fact that the Swoosh is still the industry giant by a wide margin. It still works with the world’s most iconic athletes, from Michael Jordan to Caitlin Clark, and dominates professional sports.
Ultimately, there’s a good chance Nike will get back on track. After all, you don’t dominate your industry for decades without the ability to adapt when needed. Analysts still anticipate over 12% in annual earnings growth moving forward. The stock typically trades at over 37 times earnings, but that’s fallen to a price-to-earnings ratio of just 19 today. The dividend has grown for 23 straight years, and its yield is now its highest in recent memory. It’s a great contrarian opportunity for believers in the Swoosh.
3. Hershey
Confectionary giant Hershey (NYSE: HSY) isn’t a victim of self-inflicted troubles; it’s just bad luck. A generationally bad cocoa harvest has spiked commodity prices to all-time highs, threatening Hershey’s profits. The rapid growth of appetite-suppressing GLP-1 drugs has also hurt sentiment toward the stock. But Hershey’s products aren’t meals; they are treats. The company’s various brands dominate store shelves in America, including Hershey’s, Reese’s, Twizzlers, and more.
Analysts have lowered earnings growth estimates to the low to mid single digits, and the stock has responded by selling down to a P/E of 18 versus its decade average of over 27. Hershey also offers a well-funded dividend that yields roughly 3% today and has grown for 15 consecutive years. The cocoa problem is real, but it could also pass and be a blip five years from now. Hershey’s stock is rarely this cheap.
4. McDonald’s
Iconic restaurant chain McDonald’s (NYSE: MCD) is grappling with more cost-conscious eaters. People are pushing back on McDonald’s prices, which have crept high enough to have customers questioning the value the restaurant’s brand is known for. Management discussed this challenge during the company’s Q1 earnings and is responding with a $5 meal deal and other incentives to drive customers to use the company’s smartphone app.
Pricing pressure has Wall Street unsure of McDonald’s future growth prospects. The stock has slid below its 10-year average P/E ratio of 25 to just 20 times earnings. However, the company remains fundamentally sound. It makes most of its profits from the real estate its restaurants stand on, and the meal deal could alleviate price concerns. Meanwhile, McDonald’s is a dividend rock star with 49 years of consecutive dividend growth and a solid 2.7% starting yield. Analysts are still estimating high-single-digit annual earnings growth, which could accelerate if consumers bounce back. For now, the stock is a proven winner on sale.
Should you invest $1,000 in Starbucks right now?
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Justin Pope has positions in Hershey. The Motley Fool has positions in and recommends Nike and Starbucks. The Motley Fool recommends Hershey and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
The Smartest Dividend Stocks to Buy With $600 Right Now was originally published by The Motley Fool
