🥱 Has This Blue Chip Stock Lost Its Pep?

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What’s on the Menu 🍴

Inflation’s on the rise…

And regulators are increasing their battle on crypto.

With all this heat, will investors get burned?

Let’s dig in!

  • Uniswap's Fight Ignites Crypto Regulatory Debate 💬

  • Inflation Is Making The Market Grumpy 😠

  • Has This Blue Chip Stock Lost Its Pep? 🥱

Today’s newsletter is a 5 minute read.

Uniswap's Fight Ignites Crypto
Regulatory Debate 💬

Uniswap is currently under the SEC's microscope, accused of operating as an unregistered securities broker and exchange.

Here’s the lowdown:

  • This development comes on the heels of a Wells notice, a sort of regulatory heads-up, indicating potential enforcement action.

  • Uniswap's token, UNI, took a hit, nosediving 18% post-announcement.

  • CEO Hayden Adams is riled up but ready for a legal showdown, signaling a stormy period ahead for the crypto exchange.

Who’s celebrating and who’s ready to fight?

Some folks are rubbing their hands in glee over this.

Bitcoin maximalists and those skeptical of crypto's flamboyant rise see this as a moment of vindication. They argue Uniswap's decentralized claim doesn't hold water, and UNI's structure fits snugly into the Howey Test's definition of a security.

Essentially, they're saying, "We told you so."

On the flip side, a chunk of the crypto community views this as a direct assault on the core principles of financial freedom and innovation.

They hail Uniswap as a beacon of true decentralization in a sea of pretenders, and they see the SEC's move, spearheaded by Gary Gensler, as a politically charged overreach aiming to stifle progress.

What does this mean for crypto?

This isn't just a spat in a niche corner of the internet. The outcome of this clash could very well shape the future landscape of crypto regulation in the U.S.

It's a pivotal moment where the scales could tip decidedly in favor of a more controlled crypto environment or swing towards a freer, innovation-first approach.

Whatever the outcome, it promises to set a significant precedent that will resonate far beyond the halls of Uniswap and the SEC.

Inflation Is Making The Market Grumpy 😠

We received the updated Consumer Price Index data which gives us insight into the inflation trend.

The S&P 500 quickly fell roughly 1% after the news was released.

The inflation print, unfortunately, was higher than anticipated, which likely means interest-rate cuts, are going to be pushed back even further (Although the Federal Reserve uses PCE to measure inflation, not CPI).

But, when we look at the overall trend of inflation today, and historic trends of prior periods of high inflation, this rise could end up being noise.

When looking at the bigger picture, increases in inflation after we've seen a down trend have been common. We’ve been here before.

It seems too soon for everyone to panic, and assume that this means we are headed into higher trending inflation again.

It's very possible that this could end up being a blip on the radar when we look back in the future.

Disinflation historically has never really been as straight line down.

The path lower often does come with short periods of small inflation spikes.

Of course, it's easy to look at this, and understand how the intermittent rises in inflation were nothing to worry about, but in the heat of the current state of the economy, I can see why investors are getting jittery.

A huge contributor to the recent inflation report was shelter a.k.a. rent/housing and transportation.

For one, shelter is a lagging component that we are still waiting to see the full effects of rent decreases and housing decreases that happened in certain areas of the US in 2023 flow into CPI.

Second, Motor vehicle insurance rose a whopping 22% year over year. While this is not a huge component of the CPI like shelter is, transportation overall seem to be a contributing factor.

It's doubtful that we will continue to see motor vehicle insurance rise at these double digit rates forever.

So, the stock market is grumpy that we may see rate cuts pushed back later in the year (if at all), but, there’s still a lot to be seen before we should truly panic.

Has This Blue Chip Stock Lost Its Pep? 🥱

This week we were surprised to see the stock of a beloved global consumer brand hitting a fresh 52-week low:

This company’s products are consumed by millions across the world each day.

Its revenue and earnings have more than doubled in the past decade, and its 2024 earnings are expected to grow another 14%.

If you guessed that the company is Starbucks (ticker: SBUX) then congrats, you nailed it!

SBUX is now down 8% year-to-date and down 16% over the past year despite solid financial performance.

It’s valuation has compressed significantly in the past three years:

SBUX has traded at an average P/E ratio of roughly 30X over the past decade, but is now around 20X.

That puts SBUX at about the same multiple as the S&P 500 index despite having better earnings growth.

Could SBUX be a good dip buy at current levels?

One big risk is slower growth, especially as competition heats up in the coffee industry in the US.

Other chains such as Dutch Bros, Black Rifle, and Scooter’s are aggressively growing their store bases.

Starbucks is large & heavily penetrated in the US, which makes fast growth harder to come by in its home market.

Then there’s commodity and wage inflation which also threaten the bottom line.

Yet despite all of that, SBUX still has avenues for growth, especially in international markets.

Starbucks does very well in China, with sales growing 20% there last quarter.

There’s also room for thousands more stores in China and elsewhere. SBUX opened 420 new stores last quarter alone. 🤯

Starbucks also has a strong culture of innovation in both products & technology. Digital orders already account for more than 50% of sales today.

In the past 15 years this valuation level (20X P/E or below) has been a good buying opportunity in SBUX stock. In fact, it has rarely traded below 20X.

So while SBUX stock is currently drooping, the correction could be an opportunity to perk up the portfolio with venti sized returns in the months ahead!

Food For Thought 🧠

"I made a fortune getting out too soon."
- J.P. Morgan, implying the importance of timing,
which is crucial in short selling.

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DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.