Market Overview

Cramer Passes On Buying Coffee Stocks — For Now

Cramer Passes On Buying Coffee Stocks — For Now

Shares of coffee chain Starbucks Corporation (NASDAQ: SBUX) are up nearly 30% since the start of the year, while shares of rival Dunkin Brands Group Inc (NASDAQ: DNKN) are up 25%.

Is it too late for new investors to buy a position? According to CNBC's Jim Cramer, the answer is a simple yes.

What Happened

Starbucks and Dunkin are both "terrific coffee chains," but now is not the "correct moment" for new investors to buy in, Cramer said during the "Mad Money" show Tuesday.

Both coffee chains succeeded in "defying the bears," the CNBC host said. 

Shares of Starbucks were trading below $50 per share in June 2018, which in hindsight was one of the two buying opportunities for investors, he said.

The other opportunity was in late December 2018, when shares fell from the high $60s to the low $60s.

Since then, Starbucks CEO Kevin Johnson's initiatives — including a focus on digital, execution improvements, a partnership with UberEATS and a stock buyback — resulted in "two excellent quarters in a row," Cramer said.

Similarly, Dunkin's "made a bunch of investments" in the business last year and is now "reaping the rewards," he said. 

Why It's Important

Starbucks' stock should not have sold off "so hard" in 2018, but the company has turned around the narrative, Cramer said. Throughout 2019, the stock has been "such a fabulous winner" because management "just keeps delivering and delivering," he said. 

Johnson "deserved the benefit of the doubt" last year, the CNBC host said. 

What's Next

Starbucks' stock is trading at 27 times next year's earnings estimates, while Dunkin's stock is trading at around 25 times next year's estimates.

This makes the stocks expensive at current levels, but if shares of either company are "brought down for whatever reason," Cramer said he offers his "blessing to start buying."

Starbucks shares were down 0.57% at $82.45 at the time of publication Wednesday, while Dunkin shares were down 0.34% at $79.80. 

Related Links:

What The Luckin Coffee IPO Means For Starbucks

Valuation Concerns Prompt BMO To Downgrade Dunkin' Brands

Posted-In: CNBC coffee Jim Cramer Kevin Johnson Mad MoneyRestaurants Media General Best of Benzinga


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