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Five of My Favorite Coffee Stocks
For millions of Americans, and indeed for millions around the globe, there’s nothing like a piping hot cup of coffee to help kick start the day.
It’s the beverage of choice for the hordes on Wall Street, many of whom rely on a strong cup of java to help propel them through a stressful trading
day.But Wall Street pros don’t just relegate their relationship with coffee to what’s inside their mugs. For many professionals, as well as for many
individual investors, coffee is more about buying and selling shares of the best coffee stocks out there.And if you know which coffee stocks to buy, you might find your portfolio more pumped up than the lift you get from a triple shot of espresso.
Here are five of my favorite coffee stocks now…
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Coffee Stock #1 – Caribou Coffee Company (CBOU)
Caribou Coffee Company (CBOU) is sometimes seen as a Starbucks knock-off, but this company can definitely stand on its own. The Minneapolis-based Caribou is the second largest company-owned gourmet coffeehouse operator in the United States, based on the number of coffeehouses.
As of 2009, Caribou Coffee had 515 coffeehouses, including 101 franchised locations. The company offers high-quality gourmet coffee and espresso-based beverages, as well as specialty teas and whole bean coffee.
With its latest earnings totaling 19 cents per share, CBOU beat estimates for the fifth time in as many quarters. The positive report was due mostly to cost-cutting, but the company holds no long-term debt and continues to see sales improve thanks to a great product line.
I rate CBOU an A or strong buy.
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Coffee Stock #2 – Diedrich Coffee Inc. (DDRX)
Talk about piping hot, how about Diedrich Coffee, Inc. (DDRX)? The company’s shares have been steaming
higher for quite awhile now, racing up a stunning 17,000% in the last year from about 20 cents per share at this time in 2009 to $35 today.Last summer, the roaster and wholesaler of fine coffees was added to the small-cap Russell 2000 Index. Making into the Russell 2000 means many indexed ETFs and mutual funds had to put DDRX shares in their portfolio. But it’s not just the inclusion of DDRX into the Russell 2000 that makes it worth pouring into your portfolio. The company then saw shares explode after a buyout battle ensued between rival coffee companies.
Last quarter, Diedrich reported earnings of 30 cents per share, which was right on target with estimates. But looking forward, the company is seeing some positive revisions that look like a big earnings surprise is in the works. I like that momentum.
I rate DDRX an A or strong buy.
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Coffee Stock #3 – Green Mountain Coffee Roasters (GMCR)
As the name suggests, Green Mountain Coffee Roasters (GMCR) is based in the pastoral state of Vermont.
The company offers about 180 varieties of coffee, cocoa and tea, which it sells to wholesale customers including supermarkets, convenience stores,
resorts and office-delivery services.Some of its biggest customers are ExxonMobil’s convenience stores and McDonald’s restaurants. In September,
Green Mountain acquired Tully’s Coffee, which has been chipping away at Starbucks dominance in the Pacific Northwest. Green Mountain Coffee’s popular Keurig brewing system is also red-hot, with the increasing demand for specialty coffees in homes, restaurants and offices.In late January, GMCR posted a simply stunning earnings report that included a 163% jump in adjusted net income and a 77% increase in net sales for its fiscal first quarter. Shares have been flying high as a result.
I rate GMCR an A or strong buy.
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Coffee Stock #4 – Peet’s Coffee & Tea Inc. (PEET)
Northern California-based Peet’s Coffee & Tea Inc. (PEET) is a different flavor of coffee stock, really cashing in on premium herbal tea offerings and specialty foods as well as providing a great cup of java.
Jellies, jams, candies and pastries are just part of PEET’s diverse product line. This has helped the company find a broader customer base, appealing to those with a sweet tooth as well as caffeine junkies and iced tea fanatics.
The results are clear in Peet’s bottom line. The company has topped estimates in all four of the last quarters, with an average earnings surprise of about 16%. Thanks to tighter cost controls and higher sales at its specialty business, I expect this trend to continue. Margins are rapidly expanding, showing that PEET is still running a tight ship despite its past successes.
I rate Peet’s a B, or buy.
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Coffee Stock #5 – Starbucks (SBUX)
The big news in the coffee world recently has been brewing behemoth Starbucks (SBUX)as it has bounced back big-time. The company bested Wall Street earnings estimates in late January thanks to 4% growth in same-store sales and fiscal first-quarter profit that more than tripled over last year.
Cost-cutting efforts and the downsizing of underperforming stores has really paid off. Starbucks has now closed at 676 U.S. locations and almost 100 abroad, but has managed to see stronger sales. This may sound counter intuitive, but a rejuvenated product line with affordable options and low-fat drinks like the Skinny Latte have made consumers fall in love with SBUX once more.
For years, Starbucks was the darling of Wall Street. It seemed to do no wrong. The shares vaulted from less than 70 cents a piece in 1992 to $40 by 2006. But Starbucks wasn’t managing its growth very well, and they opened too many stores far too quickly. As a result, shareholders paid the price. But now, things have really turned around and I feel like Starbucks is back on track.
I rate SBUX an A, or strong buy.
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