Friday, July 27, 2007

Time to Add SBUX to the Portfolio

Today we're adding Starbucks to the Evergreen Portfolio... Here's why...

The economy is growing, posting a 3.4% rate of growth in the second quarter over 0.6% for the first quarter. Business spending helped spur the increased vigor, according to the Commerce Department report.

Spending and consumer products like SBUX go well together and we could be catching a wave with this one. The stock has been eviscerated this year so far, trading about 23% off it's high hit in January... but it has begun rising in recent days and could continue with some help from the broad markets (even a little!).

There is no sound fundamental reason for this price decline, with same store sales growing modestly, tremendous expansion into the Chinese market, and a renewed focus on the core appeal of the company (the quality of the stores - the "experience" and the coffee).

The other good news is that SBUX has begun showing signs of life. And the company just announced a 9 cent per drink price increase that should help its margins significantly (meanwhile, caffeine addicts like me will continue lining up - we just can't help ourselves).

Of course SBUX has killer SRI credentials: it gives all employees benefits... it minimizes product packaging... it supports eco-farming of its beans... and of course, like NMR, it's part of the Dow Jones Sustainability Index.

Action: Buy Starbucks (SBUX) at $26.98 or better, and place a 25% trailing stop under this position. That means we'll drop it from the portfolio if it closes below $20.24.


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