The Caffeine Play
Adam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the investment world, it’s important to find companies with business models that work. While this process is often undertaken by evaluating various metrics and financial ratios, it ultimately rests on a few concrete objectives. One of the most important objectives is finding a company that provides a good or service for which there is adequate demand.
It is for this reason that I highly recommend investing in the legal drug-dealing market. No, I’m not talking about pharmaceuticals. In this case, I’m talking about the caffeine play. While certain folks, like Mitt Romney, might shy away from this strategy, I feel that it could provide value to other investors.
The first stock to consider is Coca-Cola (NYSE: KO). The stock is trading close to it’s highest level in over a decade, nearing the all-time high set in 1998. In fact, the recent minor decline in the stock may represent a bounce off of support, indicating a good entry point. This performance comes on the back of strong earnings by the company. For Q2 2012, Coca-Cola reported $1.22 in earnings per share, beating estimated EPS by $0.03.
Additionally, the company recently announced plans to restructure in an effort to streamline operations. Specifically, the company plans to consolidate it’s current six divisions into three. Coca-Cola Americas will oversee operations in North, Central, and South America, while Coca-Cola International will oversee operations in Europe, Asia, Africa and the Pacific. Lastly, Bottling Investments Group (BIG) will represent bottling operations located outside of North America.
Also of note is the fact that the company announced it’s 50th annual dividend increase earlier this year. Not too shabby if you’re looking for a stock with a proven track record.
The second option for the caffeine play is Starbucks (NASDAQ: SBUX). While the company’s stock price has declined for the past few months, it has bounced back significantly. As of this writing, the stock is trading at $48.22 - an increase of 12% from the August 2 low of $43.04.
Perhaps one of the reasons for the turnaround is the announcement of the partnership between Starbucks and Square. Square, a payment processor company, offers services such as mobile device payment options and an innovative, flat monthly processing fee for small merchants. Starbucks invested $25 million in the startup, and will use the company to process all debit and credit card transactions at Starbucks stores in the US.
Once the partnership is fully implemented, customers will be able to buy a coffee by simply walking into a Starbucks and giving their name to the barista. Specifically, Square’s mobile payment app will utilize GPS technology to confirm that the customer has entered the store, and then send the customer’s photo ID and name to the register. All the customer has to do to make a purchase is confirm the information.
The brilliance of this system is that it clears away every possible obstacle for millions of caffeine addicts seeking their daily coffee fix. Obviously, Starbucks provides a product for which there is adequate demand. The fact that they now plan to supply that product with unprecedented efficiency surely can’t hurt.
Adam808 has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and Starbucks. Motley Fool newsletter services recommend Starbucks and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.