Laffer Tengler Investments CEO and Chief Investment Officer Nancy Tengler joins Yahoo Finance Live to explain some of her latest stock trades: Buy Starbucks (SBUX) and Broadcom (AVGO), while selling or avoiding CVS and UPS.

Starbucks beat on its earnings per share estimates in its fiscal third quarter, but fell short in its revenue. Nonetheless, the coffee shop chain saw growth in year-over-year sales, including those in China and other international markets. Investors should "buying the management team," Tengler says on the confidence of Starbucks' executive leadership. Chipmaker Broadcom has beaten earnings estimates in their past 12 quarters. In a short span of 3 months since May 2023, Broadcom shares price has exponentially risen by over $250.

Courier company UPS faces headwinds in the form of rising costs as delivery drivers negotiate a new labor deal. “We’re exiting the name and we're putting the proceeds to short-cycle industrial names, and that's where I think you want to be focused in the next 9 months to a year," Tengler says. Lastly, pharmacy CVS has topped earnings estimates while undergoing layoffs as part of an ongoing cost-cutting strategy. "The balance sheet is burdened with debt," Tengler notes, advising to invest in traditional health care and consumer staple sectors.

This post was written by Luke Carberry Mogan.

Video Transcript

- Being in the thick of earnings season, investors are constantly looking for investing opportunities but also warnings on stocks to avoid.

Laffer Tengler investments CEO and CIO Nancy Tengler back with her picks.

And Nancy, let's begin with those stocks that you like, kind of something you mentioned earlier.

Starbucks.

You kind of describe this as more of a legacy company that really is getting consumers to sort of stick with the brand, particularly through their digital strategy and loyalty.

What do you like about that?

NANCY TENGLER: Well, I think, and most importantly, Akiko, is I really like the new CEO.

And that matters.

Investors should be investing like private equity investors do.

They should be buying the management team.

And he has demonstrated pretty clearly that he understands the global market in a way that I don't think previous CEOs necessarily have.

And he has hired a new head of supply chain who is really going in and looking at every aspect of the business, which allowed them to improve margins during the quarter.

I just finished the second edition of my book, the Women's Guide to Successful Investing.

And I wrote about Starbucks in that book.

I bought it in April of 2007 at 30.

It promptly went to 5 and just left to its own devices since then.

It's up tens of thousands of percent in total return simply because this is a great company with a great brand that figures it out over time.

They stumble, and that's an opportunity to add to holdings.

And so we did that last year.

And we will continue to add to holdings because I think they're going to be able to deliver on their pretty aggressive earnings and revenue growth numbers.

- Oh, Nancy, I will be reading your book, especially when you give that context for that call.

I mean, that was a big move since then.

To your point, left to its own devices, even including the pandemic when so many stocks sold off and then popped back, and Starbucks has held up.

I did listen to their earnings call this week.

And you've made this point about some skepticism, there was.

Particularly when you think of US sales, they talked a lot about China.

But the penetration isn't there yet in China, especially to offset any kind of softening in terms of sales growth here in the US.

You still like it in the face of skepticism?

NANCY TENGLER: I do, Diane, because I think-- well, first, Wall Street analysts are not very good at turning points.

Most people aren't.

That's why we use a discipline that forces us to pay attention at turning points.

But I think also, this is a management team that will figure it out.

And the digital engagement-- I mean, what Laxman said on the call was not just that he wanted to embrace the digital portion, but he wants to scale.

And that is how you get productivity and improvements in a name like this.

And they have a lot of room for improvement.

McDonald's noted I think it was 4 to 5 times the downloads of their digital app last quarter than Starbucks did.

So even with the improvements in Starbucks' digital app, there is plenty of room.

For growth and we think he's the one that is going to get that accomplished.

And so we're getting paid a 2% dividend, 12% growth in that dividend.

So we can kind of afford to just hang out and wait for the management team to get it right.

They will.

They have in the past.

And they will do it again.

- Another pick you like, Nancy, is Broadcom.

You've mentioned this before, and this is one where you're standing by your man.

Now to be fair, it has performed well since you last called for this as a pick.

Does it still have more room, especially when you see some struggles that its competitors have?

NANCY TENGLER: Oh, the chip names have been really sort of confounding this quarter.

Some really good reports and some not so good reports, like we saw from Qualcomm today.

But yes, and here's why.

I think a couple of things.

One is this is a name that is-- well, first of all, they've beaten 12 out of the last 12 quarters.

And they've not just beat on revenues and earnings, but they've raised guidance every single quarter for the last quarter.

It's a management team that understands their business infinitely.

We weren't counting on the AI tailwind, but we got it.

And we think it will continue to contribute materially to earnings growth in the future.

You have the VMware transaction will close.

That's good news for the stock, which is really actually about 50% software after that transaction and 50% chips.

And then in addition, you are getting paid 2.1% dividend yield with 23.5% I think five-year annualized growth in the dividend over the last five years.

I'll take that all day long.

The stock is trading close to $1,000 a share.

I think you're probably going to get a split, which doesn't add any economic value but adds to sentiment.

And so I think when technology sells off, and I expect that will happen between now and the end of the year, this is a name you want to go in and scoop up.

- And Nancy, let's talk about some of the names that you say investors should steer clear from.

UPS one of those.

How much of this has to do with rising costs?

On the one hand, UPS averted the worst case scenario with a strike.

But when you look at the tentative agreement, that only points to higher costs ahead.

NANCY TENGLER: And that's the reason, Akiko.

I mean, I think there's just better places to be.

You want to own industrials when the manufacturing PMIs are bottoming.

They are.

But you want to own the short cycle names.

So even though I think Carol Tome is an excellent CEO, I think you are getting paid to wait.

So if you own the stock, you're collecting a pretty nice dividend.

I think the stock will outperform in the future.

But in the near term, I just think there are better places to be.

So if you don't own it, don't buy it here.

I think it's tempting.

But I wouldn't.

We're exiting the name.

And we're putting the proceeds into short cycle industrial names.

And that's where I think you want to be focused in the next nine months to a year.

- And Nancy, another one that you don't like, and you've mentioned this before actually, CVS.

And once again, you've nailed this one.

I mean, year to date the stock is down 20%.

It did beat on its latest earnings.

However, there's some caution there.

Take us through the case for steering clear of this one.

NANCY TENGLER: Well, Diane, thank you.

I think it's, again, there are better places to be in health care and certainly in consumer staples/discretionary or retail, however you want to characterize the name.

I would use this bounce to exit.

And the reason for that is the balance sheet is burdened with debt.

They were just paying it down, starting to grow the dividend, and then they made a number of acquisitions.

I don't really get the model.

I mean, I understand it, but I'm not convinced that it's going to be a high growth name in the future.

So it's one of those names that could sit in the portfolio and contribute from a dividend growth perspective.

But again, we're finding much more attractive places to be in the market.

And I just don't think-- I think this is dead money.

You are collecting dividend.

I don't think it's going to grow very much because the company has a lot of debt to pay back.

And there was a lot of concession around the fact that their earnings growth is going to is going to be slow.

So I wouldn't invest the capital here.

I'd look for better opportunities in health care, consumer staples, and consumer discretionary.

- Nancy Tengler with Laffer Tengler Investments.

Good takeaways there.

Really appreciate the time today.

NANCY TENGLER: Thanks so much.