Juice Up Your Portfolio With This Turnaround

by Ethan Roberts | July 13, 2012 11:27 am

Although the general market has been weak over the last six trading days, with the S&P 500 down more than 3%, one low-priced retail stock has been on a tear during that time. Jamba Juice (NASDAQ:JMBA[1]) blistered up 40% in only five trading days, climbing from $1.94 to $2.72, while breaking through resistance on heavier-than-normal volume.

What’s going on with Jamba Juice that it bucked the market’s recent trend, and why should investors take notice of this cheap, speculative stock with a history of lackluster earnings?

Jamba Juice is a restaurant retailer of healthy alternatives, such as fruit smoothies, juices, teas, organic oatmeal, and probiotic fruit and yogurt blends. It also sells wraps, salads, sandwiches, California Flatbreads and other baked goods and snacks. Jamba was founded in 1990, and today approximately 700 Jamba Juice stores are spread around the country.

But more important, Jamba recently received a contract to begin placing its smoothies and other products into school lunch rooms across the U.S., dispensed from what it calls a “JambaGo,” a self-serve kiosk about the size of a soda-fountain beverage dispenser.

With today’s politically correct pressure on schools to eliminate colas and other sugary soft drinks and snacks from school vending machines, Jamba Juice is well poised to deliver substantial earnings growth over the next few years. The smoothies and other products Jamba offers in schools will contain fewer calories and grams of sugar than those sold in its retail outlets.

And although Starbucks (NASDAQ:SBUX[2]) has recently begun to compete directly with Jamba[3] by introducing a line of “Evolution Juices” in its own locations, Starbucks isn’t currently a competitor in the school lunchroom market. This gives Jamba Juice a potential gold mine niche, and a good head start over any potential future rivals.

Jamba CEO James White recently told CNBC that the company plans to put JambaGo kiosks in 400 to 500 schools by year-end. Jamba already has 30 kiosks open in a pilot program. It also pledged to hire 2,500 summer workers, an indication that it expects strong business over the next few months. The record heat waves over the last few weeks could give Jamba a sales boost as well, and probably contributed to some of the recent price surge.

The company recently announced that it will be selling many of its products in 28,000 retail outlets, which will give it nationwide distribution. Jamba has also signed a partnership with Bare Fruit Snacks to produce several varieties of a baked, all-natural, 100% fruit chip snack.

As if that weren’t enough, Jamba has also announced a partnership with the U.S. Olympic water polo team, as well as tennis star Venus Williams, who appeared at the opening of a new Jamba Juice store in Washington, D.C. Exciting publicity like this will help to promote the brand to a wider audience.

Roberts JMBA 300x273 Juice Up Your Portfolio With This Turnaround
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Not only is the story line improving for JMBA, but the stock is showing great relative strength in the past week against a weak general market. It broke through resistance from last March just below $2.30, and on much-higher-than-normal volume. It usually trades less than 600,000 shares per day, but twice in the past week it surpassed 1.7 million shares.

There’s a previous resistance level at $2.75 from 2010, but it appears that JMBA will soon break through that, and should have very little resistance thereafter until the $3.75 level. That would give investors the potential for huge gains in this stock over the next 12 to 24 months. You can see the most recent breakout on the chart below.

As you can see from the chart, the RSI and stochastic are both in overbought territory right now, so we don’t want to chase the price. I would be a buyer on any pullback between $2.30 and $2.40. The stock did touch $2.40 on Thursday morning and closed at $2.56. It’s now trading midday Friday at 2.64. I believe that JMBA has plenty of upside potential ahead of it.

Ethan Roberts owns shares of JMBA in his IRA account, and plans on adding to his position.

Endnotes:
  1. JMBA: http://studio-5.financialcontent.com/investplace/quote?Symbol=JMBA
  2. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  3. compete directly with Jamba: http://investorplace.com/2012/03/starbucks-declares-war-on-jamba-juice/

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