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GMCR Stock: Why Now’s a Good Time to Own

Headline after headline justifies an investment in Keurig

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Two announcements took place last week that should provide positive momentum for the newly renamed Keurig Green Mountain (GMCR).

gmcr-stockFirst, GMCR is being added to the S&P 500, replacing WPX Energy (WPX). Secondly, GMCR has amended its five-year agreement with Starbucks (SBUX) regarding its K-Cup single-serve coffee packs.

Is it enough to justify buying GMCR stock? I’ll look at why now’s a good time to own Keurig:

GMCR Stock and the S&P 500

Keurig Green Mountain currently is part of the S&P MidCap 400 Index, which seeks to invest in mid-sized U.S. companies, and it’s the largest weighting at 0.89% of the overall index. GMCR stock will switch places with WPX on March 21.

That’s a bit of good news for investors, as studies show that stocks can get as much as 5% appreciation from joining the S&P 500 — after all, approximately $5 trillion is invested in funds linked to the benchmark index — as portfolios are reconstituted to reflect the changes.

Long-term, however, fundamentals like earnings are what drive stock prices higher. GMCR stock is no different.

Starbucks Gives Up GMCR Exclusivity

Starbucks and Keurig Green Mountain reworked their five-year deal to provide each side with better terms. Specifically, SBUX is no longer the exclusive premium coffee brand available in K-Cup pods.

By relinquishing exclusivity, though, Starbucks is able to add a number of its other brands — Seattle’s Best Coffee and Teavana — to the K-Cup roster. At the same time, GMCR is able to enter into a relationship with Peet’s Coffee, which until this new agreement was shut out of the K-Cup competition.

SBUX has shipped more than 850 million K-Cup packs since the agreement was signed in March 2011. The change in terms is proof that SBUX benefits from the Keurig Green Mountain relationship just as much as GMCR does … so, good for Starbucks.

But in the end, it’s a double whammy for Keurig Green Mountain — it gets more products from Starbucks on the shelves while adding another quality coffee in Peet’s.

That’s a good deal.

The Big Red Machine Invests in GMCR

Since the Feb. 5 announcement that Coca-Cola (KO) bought 10% of the company, GMCR stock is up 40% compared to 5.4% for the SPDR S&P 500 ETF (SPY).

Investors clearly like what CEO Brian Kelley has done since coming over from Coke in November 2012. Now, his former association might just end up paying the biggest dividend for GMCR shareholders. Coca-Cola paid $1.25 billion for its investment in GMCR stock, which sees it collaborating on the Keurig Cold at-home beverage system.

Coke obviously sees which way the wind is blowing, and rather than make a play for SodaStream (SODA), has opted to back its former employee in the battle for at-home supremacy. (If you can’t beat them, join them!)

Article printed from InvestorPlace Media,

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