2 F&B Stocks to Buy No Matter What Happens with the Delta Variant
Author: Tim Phillips
August 17, 2021
The dreaded Delta variant of Covid-19 is wreaking havoc on the reopening plans of countries around the world. It’s also got investors on edge as stock markets look to the next potential stumbling block.
That’s because the Delta variant is much more transmissible and, therefore, easy to spread.
Meanwhile, in the US, infections have been picking up fast (with positive cases currently numbering around 129,000 a day) and the holy grail of “herd immunity” seems like an ever more distant prospect.
So, for investors who like to take a long-term view and picture a future where Covid-19 is a distant memory, here are two F&B stocks to buy that should continue to thrive no matter what happens with the Delta variant.
That morning coffee, and even breakfast, is something that Starbucks Corporation (NASDAQ: SBUX) outlets are used to serving up.
During the Covid-19 pandemic, Starbucks did see its business suffer but its digital channels managed to make up for a fair part of the shortfall.
Its latest earnings announcement was testament to the incredible management of Starbucks. For its third-quarter fiscal 2021 results (released at the end of July), consolidated net revenues surged 78% year-on-year to US$7.5 billion – a record high.
Globally, meanwhile, its comparable store sales soared 73% year-on-year while the US equivalent figure was up 83% year-on-year.
On the earnings per share (EPS) side, it looked even better with GAAP EPS of US$0.97 versus a loss of US$0.58 in the same period a year ago.
Starbucks had used the pandemic to strengthen its “multi-channel” experience, where its management speaks of “integrating physical and digital customer touchpoints” to better service their needs.
One example of this is that in the same quarter last year, 90% of its sales volumes originated from drive-through and mobile order-and-pay.
If the Delta variant takes a turn for the worse, you can expect Starbucks and its digital-first team to be ready to keep serving its customers in a “business as usual” fashion.
2. Chipotle Mexican Grill
Another big digital restaurant operator that successfully navigated the initial Covid-19 outbreak last year was Chipotle Mexican Grill Inc (NYSE: CMG).
The fast-casual Mexican restaurant chain saw its latest second-quarter 2021 earnings come in strong.
Revenue increased by 38.7% year-on-year to US$1.9 billion while its comparable restaurant sales expanded by 31.2% year-on-year.
Even more impressive is how Chipotle has seamlessly integrated its digital experience into consumers’ lives.
In the second quarter, digital sales for Chipotle increased by 10.5% year-on-year and the digital channel now accounts for just under half of total sales.
Of those digital sales, half of them came from Chipotle’s “order ahead” scheme where customers can place an order ahead of time and pick it up in dedicated lanes – providing both value and convenience.
With its restaurant level operating margin rising strongly in the latest quarter – up at 24.5% versus 12.2% in the year-ago period – Chipotle is well-positioned to keep serving its customers with its diverse, growing and affordable menu.
Stocks for good times and bad
While no one wants to see the Delta variant get out of control, the likelihood of further lockdowns in future is a real possibility.
With that, long-term investors should understand which companies can continue to operate in a less-than-ideal environment.
In the consumer F&B space, Starbucks and Chipotle are two such stocks that long-term investors can be confident holding no matter how the Delta variant situation plays out.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be.
In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.