The status quo of high-interest rates is here to stay, as indicated by Federal Reserve Chairman Jerome Powell. As the battle against inflation hits a roadblock, the central bank has decided to keep the interest rates as they are. Hence, businesses will have to contend with high costs for an extended period. Despite business resilience to cope with this new reality, performance will inevitably be impacted, leading to a decline in stock prices. Hence, investors need to be prepared.
This downturn doesn’t necessarily mean these businesses are in trouble, it rather shines a spotlight on ineffective economic management by the government. The good news is that this phase is transient and once it recedes, businesses will thrive again, leading to a rise in stock value. Purchasing shares during this dip can significantly augment portfolio returns during the recovery period.
Let’s delve into three potentially lucrative bargain stock buys.
Starbucks (NASDAQ:SBUX) is a case study that perfectly exemplifies this situation. Their recent quarterly results revealed a drastic dip that left Wall Street surprised. The decline in sales by 2% to $8.6 billion can be attributed to customers’ reluctance to foot the bill for coffee due to escalating costs. Adjusted profits also saw a downward spiral, declining 14% year over year to 68 cents per share.
According to Starbucks CEO, Laxman Narasimhan, the underwhelming results are consequences of current economic conditions.
“We continue to feel the impact of a more cautious consumer,” Narasimhan stated, “particularly with our more occasional customer, and a deteriorating economic outlook has weighed on customer traffic and impact felt broadly across the industry.”
This situation isn’t exclusive to Starbucks; it’s an industry-wide predicament. McDonald’s (NYSE:MCD), too, suffered a hit in earnings due to these government and Fed policies. However, these occurrences make Starbucks a tempting bargain stock. Despite a 16% dip in stock prices post-earnings, it’s beginning to look appealing for potential investors.
Another sound investment opportunity lies in the healthcare sector. Eli Lilly (NYSE:LLY) has been one to watch due to its pioneering work in designing therapies for obesity and diabetes. Lilly introduced therapies Mounjaro and Zepbound, with the latter two garnering impressive sales.
However, Eli Lilly is more than just these two offerings. Its portfolio of therapies is robust. For instance, Verzenio, a treatment for advanced metastatic breast cancer saw sales skyrocket by 40% to $1 billion, primarily driven by U.S. demand. However, high demand has also led to a backlog of orders, and supply availability is predicted to be tight moving forward.
For investors, the high premium of Eli Lilly’s stock might seem daunting. However, a significant pullback in stock prices could be a golden opportunity to invest.
Finally, Ulta Beauty (NASDAQ:ULTA), a beauty and personal care powerhouse, saw its stock prices take a hit, not from a proposed stock split, but from a slowdown in sales during the first two months of the quarter. Nonetheless, due to its position as the largest specialty beauty retailer in the U.S., this dip in share price makes it an attractive stock, even at triple-digit prices.
Despite these current business challenges, these companies still hold significant potential, making them worthwhile investments for those looking for bargain stocks.
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