Skip to main content

TradeRadar BUY signal for Starbucks

Starbucks may have reached an attractive entry point.

Here is a company that has been steadily growing earnings, often in double digits; however, its stock has continued on a downward path since mid-November of 2006.

From a technical point of view, the stock has recently appeared to establish a bottom and begin to turn around. At its lowest point, Starbucks hit $25.54 in June of this year. That was 35% off its highs.

The stock has fought back now to around $28 per share and is flashing a TradeRadar BUY signal. This recent rebound has been accompanied by heavy volume in both the stock and its call options.

SBUX - Click to view larger image
[ Click chart to view larger image ]

Reasons for Optimism

Starbucks is a solid company with an extremely strong brand. It continues to provide steady earnings growth, especially compared to many other stocks in the restaurant sector. Management indicates recent financial performance has been in line with its stated targets.

Starbucks is instituting its second price hike of the year. This will go a long way toward overcoming its rising costs for coffee and especially milk, which is up 94% this year. Some analysts think that the consumer, who is being pinched by rising energy costs and falling home values, may be put off by price increases on what is essentially a frivolous purchase. I don't think consumers are that rational; Starbucks gives consumers a bit of pleasure for a modest cost. A slight increase in the cost will not likely deter the many fans of the company's products. And the ambience of its stores may be worth the extra that customers pay compared to what competitors charge.

Starbucks also indicates they will be emphasizing international growth. This is an approach that has helped the bottom lines of many US companies, especially those that have seen their growth at home begin to flag. Starbucks international segment recently turned in 30% revenue growth and same store sales increases several percentage points higher than that in the US. Starbucks has instituted some management changes to continue the momentum.

Starbucks music division may not contribute a large part of overall revenue but it is a good indication of a management team that is willing to think outside the box and grab an opportunity when they see it. Their proprietary label has signed some big name artists and has been successful with multi-artist compilations. It will be interesting to see where they take this kind of brand extension in the future.

Reasons for Caution

The knock on Starbucks is that the rate of increase in same store sales in the US has fallen. Low to mid-single digit growth for Starbucks is considered a negative though in some retail sectors it would be considered respectable. In any case, this slowing in sales momentum has been hitting the stock hard and some, though not all, analysts have reduced ratings on it.

Another issue is the competition and how it is multiplying. Dunkin Donuts has gained credibility as a vendor of premium coffee drinks and now McDonald's is making a foray, so far successfully, into the same segment. The danger to Starbucks is that both of these competitors charge significantly less for their products and could begin to capture Starbucks customers.

Outlook

The technical indicators say that the rebound in the stock price has begun. The fundamental indicators are somewhat more muted but the international opportunities available to Starbucks could provide the juice needed to keep the stock price going in the right direction. I rate the stock a BUY at this time.

Comments

Anonymous said…
Wow, I am glad I did not follow your advice and buy. The stock is still going down with no end in site. How much money did people lose following your advice?
I am not happy about the way this one turned out but no has a 100% perfect record picking stocks. I also recommended a stop at a price that preserved capital. I am hoping anyone who followed my advice closed out the trade well before the new lows that were made recently.

Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…

Alert HQ has moved!

End of an era!

This site was started way back in 2006/2007 to showcase my blog posts and the Alert HQ buy signals and sell signals. Alert HQ grew to include other kinds of stock alerts including Swing Signals, Trend Busters, Trend Leaders, Cash Flow Kings and more.

In the meantime, I built a sister site, TradingStockAlerts.com and I started using some of the same Alert HQ content over there. As a result, I am discontinuing the Alert HQ data here at Trade-Radar.com

The good news, however, is that all the Alert HQ signals and stock screens are still completely free. In addition, the pages have been enhanced so that you can hover over a stock symbol and a small chart will pop up so you can get a quick look at the stock's recent price action. If you click on a symbol it will take you to a page with plenty of financial and technical analysis information (still free!) as well as a larger chart that you can play with in terms of adding or deleting indicators, moving averages, etc.

Click …