Went to the nearby McDonald (NYSE: MCD) yesterday afternoon, and tried out the Iced Latte. Personal opinion: the latte at MCD is not as good as Starbucks ( Nasdaq: SBUX). Two things:
1) McDonald makes this mostly by machine, while in Starbucks the barista used some hand;
2) McDonald serves the latte not in a full cup, this never happened to me in Starbucks.
So in summary the latte McDonald (McCafe) looks cheap, although they can argue in “blind test” their coffee tastes better. As to the regular brewed coffee in MCD, it depends: it tastes better when it was fresh brewed. The coffee beans in those stores are similar, except SBUX are usually overly roasted (looks darker and tastes bitter).
China’s role in the Fannie/Freddie mess
As Fannie/Freddie crisis deepens, people find China in akward postion because China is the largest holder of 2F’s bonds: total $376.3 billion. I don’t know exactly how China got into this mess, but I think one reason is decision maker in China must think 2F bonds are safe because of US goverment implicit gurantee. At least the market thinks so because the rating agency S&P, Moody and Fitch all gave Fannie/Freddie top rating. But wait a minute, didn’t those rating agency give a pass to those toxic MBS and CDOs? One thing I am sure is the China 2F buyers’ job are still safe, because at least they did better than the guys bought Blackstone at IPO, bought Morgan Stanley at $50s couple months ago.
The Coca Cola stock vs. Starbucks stock
In last 10 years (Mar 6 1998 to today Feb 28 2008), according Google Finance, SBUX went up from 4.93 to 18.78 (+280%, split adjusted, SBUX has not paid any dividend). That’s about 14% price appreciation annually.
On the other hand, KO went from 68.66 to 59.56 (-14.44%). But there is a caveat, Coca Cola pays out a cash dividend each quarter, so we should adjust the dividend when calculate Coke’s return.
The miserable performance of CROX erased much of my 2007 gains. But thanks to the rebound of Mindray (MR), I am still be able to be above water 🙂
Some random thoughts of Q4 and year 2007 stock performance:
1) Crocs (CROX): I agree with my friend StrengthTrader, Crocs is a fashion product. It’s almost unbelievable for Crocs to become popular in much of the world in such a short time. At least it grew much faster than Nike did 20 years ago. But will Crocs be as big as Nike some day? I don’t know. The market thinks it will NOT (traded at PE of about 20, the company projected 35 to 40% revenue growth in 2008).
2) Mindray (MR): benifit from the global spending of healthcare. Although the US market did not turn out to be as successful as we like, other interntional markets especially South America made up the slack.
Yesterday morning when I went to Panera (St. Louis) Bread to get morning bagel, I noticed they raised the price from 89 cents to 95 cents. I can fully understand the pressure they are facing: the rising wheat, diary, and energy cost.
SBUX and PNRA are hit on two sides: the rising costs of raw materials; and shrinking pockets of US consumers.
Long term, I do believe Starbucks will do very well in China, and other emerging markets; but right now, the sales from China is just too small to overcome the difficulty in the US…So I will NOT try to be hero at this time.
I read its earning report this morning (Shanghai is 12 hrs ahead of US EDT). They reported an inline quarter. In the past that could send the stock tank. Not this time, because the stock has been down 27% since Jan 1. The expectation is already very low. With a PE about 33, and revenue growth of 20%, and a superior brand, I believe its future in the long term.
Let me talk things beyond the earnings. In the Cloud 9 (shopping mall and office building, where I work these days) there are 2 Starbucks stores. Around Zhongshan park I’m aware of 4 stores total.
According to “Shanghai Metro” newspaper yesterday, Coca cola is the No. 1 brand in the world, it brand is est. valued at $65 b (I believe its market cap is more than $100 b). Starbucks is not on the top 10, but could it fetch $ 6.5 b? Note SBUX has a market cap of about $20 b lately.
People who bought the Blackstone (BX) at its IPO debut (around 35), will regret “chasing hot stocks” now. I don’t know how the Chinese State Investment Co. (who took 8% stake at around $3 b) felt about this. Oh well, they are in this for long haul.
Crocs stock (CROX) got a hit today. Barrons ran an article on weekend reminding people taking some profit now, I did it on Monday. But I’m still bullish on the company’s business, especially interntional front: hope people don’t just buy knockoffs? Continue reading Blackstone, Crocs and Starbucks
The stock got another hit today as its CFO says that: meeting the high end of the coffee shop chain’s 2007 earnings forecast will be “very challenging” due to rising dairy costs and slowing sales growth in its U.S. business,…
It seems high gas prices are really hurting them, in two ways. Some customers have to choose between a $4 latte between $3 gas, you can read this Dallas Monring News article if you are into the details. From cost side, the rising diary cost was passed on from higher corn (think ethanol) price. Also, keep in mind, the capital expenditure of new stores opened recently will take some time to bring returns. So, you can say they are facing a head wind. Wallstreet gave up on them because its growth has clearly slowed down in the US.
(Update June 7) As you would have expected, the stock dropped again (about 2.66%) after I bought it yesterday. Call it Major’s rule: stock usually drops after Major buys it.
(Original) I got a little more Starbucks (SBUX) this morning. After I bought it I realized the stock got cheaper today probablly because Panera (PNRA) issued a warning on its Q2. PNRA was down as much as 13%, partially because of the rising price of grains.