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Market Overview

Coffee Stocks That Might Have Bottomed (GMCR, PEET, SBUX)


This time a year ago, Green Mountain Coffee Roasters (NASDAQ: GMCR) was on a tear, hitting new multiyear highs throughout July. But 2012 has not been as kind to the stock. Shares were trading at 52-week lows last month. Social Market Analytics (SMA) examined the specialty coffee roaster and retailer, as discussed by Benzinga on Monday. SMA indicated that, although the stock was moving contrary to broader market trends, Green Mountain may have bottomed and some positive market sentiment was developing.

Shares of Green Mountain jumped late last week and are now more than 18 percent higher than a week ago. But the share price is still more than 30 percent lower over the last six months. This Vermont-based company has a market capitalization of more than $3.6 billion. For investors, positives include P/E and PEG ratios lower than the industry average, as well as a long-term earnings per share (EPS) growth forecast of more than 32 percent. There is also a healthy return on equity of 20.6 percent, and analysts have a consensus price target that is more than double the current share price. However, investors should also note that short interest on the stock is more than 17 percent of the float. And over the past six months, the stock has underperformed competitors such as Peet's Coffee & Tea (NASDAQ: PEET) and Starbucks (NASDAQ: SBUX).

Shares of both of these competitors also have seen slumps in recent weeks. In the beginning of May, Green Mountain slashed its guidance, and Peet's posted weak first-quarter results, driving shares in the industry lower. But since then, have Peet's and Starbucks bottomed as well? Some signs suggest that may be so.

Peet's, a producer of coffee, tea other packaged foods, has seen its shares trade between $55 and $65 since the plunge following the first-quarter report. That is the same range in which it traded last November through January, before breaking higher early this year. This California-based company sports a market cap of more than $760 million. Investors may like the long-term EPS growth forecast of about 23 percent, as well as the consensus price target, which is more than 20 percent higher than the current share price. However, investors should also note that short interest in the stock is more than 25 percent of the float. Also, the P/E and PEG ratios are higher than the industry average. And, over the past six months, the stock has underperformed the broader markets.

Like Peet's, Seattle-based Starbucks has pulled back from a 52-week high back in April. Starbucks, though is down only about 15 percent from the high, compared to Peet's 27 percent drop. Starbucks shares are also up more than 13 percent year to date, outperforming the Dow and the Nasdaq. Starbucks is an S&P 500 component with a market cap of more than $39 billion. The company also offers a dividend yield near 1.3 percent and it has long-term EPS growth forecast is 18.9 percent. The company has a healthy 28.1 percent return on equity, and its operating margin is higher than the industry average. The P/E and PEG ratios are also above the industry average, but not by much.

Investors interested in exchange-traded funds with Green Mountain holdings may want to consider iShares Russell 1000 Growth Index (NYSE: IWF) or PowerShares QQQ (NASDAQ: QQQ). For ETFs invested in Peet's, consider iShares Russell 2000 Growth Index (NYSE: IWO) or Vanguard Small Cap ETF (NYSE: VB). And for Starbucks, Consumer Discretionary Select Sector SPDR (NYSE: XLY) or Vanguard Growth ETF (NYSE: VUG). These ETFs are all up more than 10 percent year-to-date and trading within about 10 percent of their 52-week highs.


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