Digging Into Green Mountain Coffee Roasters, GM and Dunkin' Brands
SumZero is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This is your SumZero (www.sumzero.com) Weekly Market Dispatch for Jan. 18, 2012.
Green Mountain Coffee Roasters (NASDAQ: GMCR)
SumZero Analysts Following Green Mountain: 25
SumZero Investment Reports on Green Mountain: 6
SumZero Community Sentiment:
54% Short, 38% Long, 8% Hold
SumZero Consensus Price Target:
Mean: $40.00 per share
Median: $40.00 per share
Key Comparables:
Starbucks (NASDAQ: SBUX) -- Consensus: 100% Long, EV/EBITDA: 16.0x
Peet’s Coffee & Tea -- Consensus: 100% Long, EV/EBITDA: 14.9x
SumZero's Differentiated Market Insight:
“The patent for the K-Cup expires in 2012. This means that any competitor, Starbucks, Peet's, Nestle or even grocery stores with their private label brands can make their own K-Cups. This will flood the market with K-Cups and hurt GMCR’s stellar sales.” Hedge Fund. New York, NY.
“I know it is tough to short on valuation alone, but this short is motivated by consensus management selling and in large size. The CFO has sold 38% of her shares, General Counsel 87%, President 13% Other Directors 20-35%.” Hedge Fund. Seattle, WA.
“Catalyst: Increasing competition due to patent expiry in September 2012 for the K-cup technology. I believe competitors are letting GMCR grow the single-cup market for them and getting these machines in homes at GMCR's expense. Once the patents expire, I see private label manufacturers offering K-cups. Not to mention, other brands will step up their own single-cup offerings. As such, Street earnings expectations for this will not be met in the out years.” Hedge Fund. Chicago, IL.
Recent Ideas in SumZero
General Motors (NYSE: GM)-- Long
Current Price: $23.82 Target Price: $33.00
Source: Hedge Fund. New York, NY.
Quick Pitch: An investment in GM offers upside to the cyclical recovery in the North American markets, as well as best possible exposure to the secular growth in the BRIC countries, particularly China, but also Brazil. Balance sheet and operation restructurings have meaningfully reduced GM’s break-even point, allowing it to generate strong margins and cash flows even in the current depressed demand environment.
Dunkin’ Brands (NASDAQ: DNKN)--Short
Current Price: $25.76 Target Price: $17.00
Source: Hedge Fund. New York, NY.
Quick Pitch: I am not suggesting to short DNKN because the valuation is crazy. I am suggesting shorting DNKN because the company is misunderstood, smart money is selling (and may increasingly do so after the lockout expires), and the business is financially constrained from pursuing shareholder friendly initiatives and growth-oriented cap-ex projects.
News Across the Hedge Fund World
After a lousy year for large hedge funds in 2011, the New York Times is reporting that large investors are in a frenzy seeding small hedge fund managers with unusually large sums of capital. Small funds, which constitute the majority of SumZero membership, are now in the spotlight. Perhaps that is because investors are paying more attention to the fact that fund managers tend to produce their strongest gains in early years before asset bloat becomes an issue. 2012 might be a banner year for a few SumZero members.
Click here to read more.
After having shorted the stock in 2011, SumZero member Whitney Tilson (T2 Partners) spun about on shares of Netflix recently and went long at about $77 per share. Currently trading at over $92, shares of the digital media pioneer are up an astounding 40% in the very early days of 2012. Tilson and others expect considerable bullish movement in the stock going forward.
Click here to read more.
In an editorial written for Morningstar, Bill Nygren (Oakmark) writes that investors today have a ‘once in a generation’ opportunity to capitalize on significant mispricing in the equity markets. Nygren writes, “We did think stocks were cheap a year ago. But companies now have higher earnings than they did a year ago, have fewer shares outstanding (meaning EPS grew even more than earnings), pay higher dividends and have even more cash on their balance sheets. We believe the average stock is worth more today than it was worth a year ago, yet it sells at about the same price. .”
Click here to read more.
According to the New York Times, Daniel Loeb (Third Point) is in the middle of interviewing board candidates for what may ultimately become a bitter proxy fight at Yahoo!. The oft fought-over Yahoo! is finding itself in yet another tug-of-war after several successive quarters of uninspiring performance. Loeb is Yahoo!’s third largest share-holder with a 5% stake in the business.
Click here to read more.
SumZero Insight of the Week
Investors repeatedly jump ship on a good strategy just because it hasn't worked so well lately, and, almost invariably, abandon it at precisely the wrong time.
-David Dreman
Founder, Dreman Capital Management.
Motley Fool newsletter services recommend Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. SumZeroResearch has no positions in the stocks mentioned above. 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.
