Coffee Picks for Even the Grumpiest of Investors
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I'll admit it... I'm a fan of Tardar Sauce, aka "Grumpy Cat." I love cats in general, and something about that frowning face just gets to me. When I found out about the recently-launched "Grumppuccino" themed coffee drink, I even found myself tempted to forgo my usual "don't buy trendy themed items" stance for the sheer novelty of having one of those bottles on my desk.
Of course, coffee in general is a pretty interesting commodity. People want their cup of Joe, and it stands up well against recessions, economic slowdowns, and even price increases. Let's take a look at a few solid coffee-related investments that anyone could love. Well, just about anyone.
(Image copyright 2013 Grumpy Cat. Used with permission)
The coffee king
I've mentioned before that I'm not the biggest fan of Starbucks (NASDAQ: SBUX); it's not because I don't think that the company's coffee is good, I just don't think that it's quite good enough to command the "Starbucks premium" on a regular basis. Fortunately for investors, I am in the minority with this line of thinking.
In last month's earnings report for the third quarter of 2013, Starbucks announced its best overall third-quarter performance in the company's 42-year history. Earnings per share climbed 28% since the previous quarter to $0.55, while consolidated operating income grew 25% to $615.2 million. Even the amount of money loaded onto Starbucks gift cards grew 30% year-over-year. With the company trading near its 52-week high (which it hit less than two weeks ago), is there still room for Starbucks to grow?
Absolutely. Despite having 19,209 stores globally at the end of the third quarter, there is still a lot of room for the company to grow in emerging economies. The company has been doing quite well in China, leading to year-over-year growth of 30% in the Asia/Pacific region as retail coffee sales have been growing at a 10% rate in the country. Starbucks is also making smart alliances, pairing with Google to improve in-store Wi-Fi offerings and working with Outerwall (formerly Coinstar) to offer "Rubi" coffee machines in a number of retail locations.
Still running on Dunkin
When it comes to personal preference, I generally lean a bit more toward Dunkin Brands' (NASDAQ: DNKN) Dunkin Donuts over Starbucks. Part of the reason for this is that I prefer the menu offerings that Dunkin offers, with newer items such as breaded chicken sandwiches on bakery rolls giving the stores a more casual feel than the more upscale-feeling Starbucks venues.
Owning both the Dunkin Donuts and Baskin Robbins chains, Dunkin Brands is undergoing aggressive expansion and has penetrated two-thirds of the United States as of its most recent earnings report. Revenue increased by 5.9% to $182.5 million, while earnings per share increased by 24% to $0.41 per share. The company plans to add 330 to 360 Dunkin Donuts locations for the full year, and is making double-digit international expansions for both Dunkin Donuts and Baskin Robbins as well.
The menu expansion that I mentioned is also helping the company, with the fast food-like offerings drawing in customers who are more likely to go to McDonald's than Starbucks. This attraction helped same-store sales to grow 4% at Dunkin Donuts locations in the most recent quarter.
The view from Green Mountain
Last October, I expressed concern about Green Mountain Coffee Roasters' (NASDAQ: GMCR) continued profitability since the company's K-cup design patent had expired. Amid other valuation problems, the production of unlicensed K-cups by companies such as Kraft had the potential to put a damper on the company's earnings potential. Fortunately, it seems that my concerns were unjustified.
The company's stock is up significantly since I wrote that piece, and it shows little sign of slowing down. In its most recent earnings report, Green Mountain reported a year-over-year sales increase of 18% across its product lines. While brewer sales fell by 4%, the recently-announced "Bolt" brewer should bring that figure back up. Intended for offices and other community settings, the new brewer line will give Green Mountain greater access to a $2 billion market where it currently has very little penetration.
Green Mountain may be branching out from coffee as well, giving it some much-needed diversity to help fend off problems down the road. Recent patent applications indicate that the company may be looking into a carbonated beverage machine to compliment its current brewing systems, a move that could put pressure on competitors such as SodaStream.
Nothing but smiles
All three of the companies that I've discussed above hold fairly solid positions in the coffee market. Starbucks or Green Mountain likely have more growth potential at the moment than Dunkin, though at nearly half the price of the others Dunkin may make a better entry point into the coffee market for investors looking for a value-priced option. Of the three, Starbucks likely carries the greatest growth potential due to the success of its continued expansion into emerging economies.
John Casteele has no position in any stocks mentioned, and has no personal or business relationship with "Grumpy Cat" or the makers of "Grumppuccino" coffee drinks. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!