Green Mountain Coffee Roasters (NASDAQ:GMCR) — In my Stocks to Sell in October, I recommended that owners should sell their shares of GMCR and traders should short the stock. At that time, the stock was trading at over $92 a share. I noted that it had more than doubled since March, was selling at 90 times earnings, and coffee prices were rising.
That was a great time to sell Green Mountain, but there are times to sell and times to buy, and yesterday the stock rose $4.75 to $22.66, indicating that a bottom had formed. If you are one of those investors who benefited from our October recommendation, it is time to buy, covering your short and racking up a solid profit. But chasing a stock that is up 26% in a day as a new purchase might be foolhardy.
GMCR received a favorable recommendation from an article in Barron’s, which noted that it is “the fastest-growing category in the grocery channel.”
Its FQ3 income rose 30% due to strong sales of its K-cup coffee and tea packs, and it beat analysts’ earnings estimates. Inventories are up on its Keurig Single Cup Brewing system, and the stock jumped on anticipation that holiday sales would be strong for that product. Analysts see a double in the stock from about $18, but its bearish resistance line sits at $28.
Note the gap at $19.30 to $20.12, which will probably be partially covered on a pullback. Buy GMCR at $21 for a trade to $28. Longer-term buyers might benefit from the enormous gap at $30.29 to $48.62.