The S&P 500 is near its all-time high, but not all stocks are in the same boat.
The S&P 500 has been reaching all-time highs in 2024, mostly fueled by large-cap technology stocks. However, not all stocks have performed quite so well, and that’s even true about some that could be excellent long-term investments.
Vici Properties (VICI -0.68%) is an excellent business with tons of growth potential that has been beaten down because of its interest rate sensitivity. Starbucks (SBUX -2.44%) disappointed investors with its first-quarter results, but is taking steps to get things back on track. Even though both stocks are far closer to their 52-week lows than the highs, here’s why it could be a smart move to take a closer look at these proven winners.
An industry leader with lots of potential
Vici Properties is a real estate investment trust (REIT) that was spun off from Caesars Entertainment in 2018 to separate some of its real estate assets. In the years since then, it has evolved into the largest experiential REIT in the world, with 54 gaming properties and more.
Vici owns some of the most recognizable real estate on the Las Vegas Strip, including Caesars Palace, MGM Grand, The Venetian, Mandalay Bay, and more. It also owns some of the top regional gaming properties, such as The Borgata in Atlantic City and MGM National Harbor in Washington, D.C., just to name a couple. And it has started to expand beyond its core gaming business, recently acquiring a portfolio of Bowlero entertainment centers.
There’s a lot to like about Vici’s business. Its properties are mission-critical to its tenants. The average lease has 42 years left on it, and 96% of Vici’s leases have some type of inflation protection built in. And the business itself is doing great — in fact, since going public, Vici has raised its dividend every year, and at a rate that is significantly higher than most peers.
However, dividend-focused REITs like Vici are rather price-sensitive to rising interest rates, and the current interest rate environment has put pressure on its stock price. Vici is currently trading for more than 20% below its peak, and has a 6% dividend yield, making it a great time for patient investors to consider adding it to their portfolios.
Don’t let a bad quarter scare you away
Starbucks has a strong history of overdelivering on expectations, but when its first-quarter results disappointed investors, the stock to a massive dive. As of this writing, Starbucks trades for about 30% less than its 52-week high and has a dividend yield of about 3% for the first time ever.
SBUX Dividend Yield data by YCharts
To be fair, unlike Vici, Starbucks is down for a reason that has to do with its business performance, not just an unfavorable interest rate environment. In its latest fiscal-quarter earnings release, Starbucks revealed a surprising 6% decline in customer traffic and a dip in same-store sales (analysts had expected these metrics to be flat to slightly positive). Management conceded that the results fell short of their own expectations, (correctly) attributing the declines to more selective consumer spending on discretionary products.
However, the headwinds are temporary in nature, and there are some good reasons to be positive. Management’s cost-cutting plan is proceeding even better than expected, for one thing. And the company is taking steps to improve its in-store experience, especially when it comes to mobile ordering, and has rolled out value-priced food and beverage combos to boost sales while customers are reluctant to spend.
Two excellent businesses at a discount
Both of these are rock-solid businesses that are on sale due to temporary headwinds. As the interest rate environment normalizes, it should not only alleviate pressure on income stocks, but should give Vici a more appealing cost of growth capital. Similarly, as economic fears start to subside, it could be a major catalyst for discretionary spending, and if Starbucks successfully fixed consumer pain points related to its ordering system, it could emerge from the challenging environment in even better shape than it went in.
Matt Frankel has positions in Starbucks and Vici Properties. The Motley Fool has positions in and recommends Starbucks and Vici Properties. The Motley Fool has a disclosure policy.