Key Points

• Starbucks’ stock could rise if Paul Singer launches a proxy fight or Howard Schultz returns with a buyout.
• Singer might push for cost cuts and board changes, driving a stock rally.
• Q3 earnings will be key to watch for these potential developments.
• Also: Smart money is looking at ‘The Next Nvidia’ as 2025’s best investment

Lee and Doug discuss two potential catalysts that could significantly impact Starbucks’ (Nasdaq: SBUX) stock. First, they consider the possibility of activist investor Paul Singer stepping in, known for aggressively pushing for changes in undervalued companies. They suggest that Singer could initiate a proxy war, demand board seats, and push for cost-cutting and dividend payments, which could lead to a stock rally. The second catalyst is the potential return of Howard Schultz, the former CEO, who might team up with private equity to take control of the company again. The conversation concludes with a plan to revisit these developments after Q3 earnings to see how these factors might play out and what they indicate about the broader economy.

Transcript:

Now, if you’re a gambler, there are two catalysts.

There are two catalysts that could make this stock move and maybe a lot.

Number one, Paul Singer, our friend, the Raider, comes in and slaps management around.

Even did it in Argentina.

Argentina didn’t pay him what he thought he should get on the bond, so he sued Argentina and he won.

Paul, he’s a tough guy.

Yeah, he’s been sniffing around pretty big, too.

We discussed this before, too, the possibility somebody could go after him.

So he thinks it’s undervalued.

He comes in.

We know the playbook.

He says, I’m going to put together a proxy war.

You know, we’re going to fight you to the death.

I want two board seats.

And when I come onto the board, the CEO is going to get fired and I’m going to cut costs.

You know, we’ll cut costs and we’ll start to have a dividend.

He’ll do all that stuff.

Now, the day that Singer gives a specific game plan, I’ll predict the stock rallies.

It may not stay up, but the fact that he’s saying, what happens right now does not work.

I’m going to come in and change it.

That could cause a problem.

Other thing is Howard Schultz, who is as close to a founder of Starbucks as you can find.

Yeah.

So he’s been CEO three times.

He was a CEO very early on.

Retired.

New guy comes in.

Bad results.

Comes back.

So he’s just left as his third round as CEO, his handpicked successor is there now and things are falling apart.

And all of a sudden, Schultz is on TV shows, he’s on social media saying, you know, that these people are all jokers and that it needs to be fixed again.

So, yeah.

And he’s always so indignant about it too.

It’s like, look, man, you’ve been there a lot over the last 25 years and you’re always so indignant that somebody else must have done this.

Yeah.

So I think the other thing that could make this pop is you get one of the PE companies.

They go in with Schultz on this and say, okay, we’re going to come in with him.

We’re going to buy it fairly cheap, bring him in as CEO.

The stock is going to rally to whatever the offer price is.

But to me, unlike McDonald’s, there are some catalysts that could make this stock rally.

Yeah, I think there is.

So we’re going to have another set of earnings, both for Starbucks and McDonald’s in the a little over, let’s just call it 90 days.

So what you and I are going to do is we’re going to come back, we’re going to look at Starbucks, we’re going to look at McDonald’s, we’re going to look at Howard Schultz, we’re going to look at Paul Singer, we’re going to look at everybody.

We’re going to look at whether McDonald’s has added more of those party areas for the kids to bring in traffic, the $5 meal, all of it.

So we’ll come back and review all of those things when Q3 earnings come out.

Yeah, and it’ll be interesting to see if the worries over slowing economic indicators and the slowing economy, if we see these numbers flatten out and are worse in the next 90 days, you can guarantee that the economy is headed on a downward slope.

Yeah.

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