As Cyprus’s financial woes cool off the recen insane market run, we can finally invest in great companies at less than a premium. Not to say that all companies are inflated, but cheaper is always better when it is a great company you do not yet own. Let’s review a couple of promising stocks currently trading at a discount.
Opportunities meet Mother Nature
I was hoping that Starbucks Corporation (NASDAQ:SBUX) would be a bit cheaper, but that was hoping for too much: It’s the economic engine keeping America awake. Perhaps that’s overstated — there are other places to get your coffee — but Starbucks has managed to nudge itself into people’s daily routine. Even with all the in-home coffeemakers out there, including Starbucks’ own Verismo, the quality that people like can only be had at the stores.
Starbucks Corporation (NASDAQ:SBUX) needs overseas expansion in order to continue growing. India has a small number of shops, but they are doing reasonably well. It seems to be a slow expansion for India. Chinese stores are doing well too, but it is too early to tell if this success will grow at the expected rates or be as consistent.
There is not much Starbucks can do domestically. It can diversify its product offerings. Getting Teavana is part of diversifying, because some people just do not drink coffee. Offering tea bars is a great way to do for the tea drinkers what it did for the coffee drinks, which is giving them a place to work on their screenplays. Selling food is another way to expand revenues, but is not as effective as hitting new population centers.
Starbucks bought a coffee farm to experiment with fighting off a fungal infection called coffee rust, alongside other planned research. Estimates of coffee production declines indicate there is an expectation that the fungus is spreading, which could place an upward price pressure on coffee beans.
This fungal infection is not to be taken lightly. Phylloxera, which attacked graps, was especially bad, due to Old World vines having no resistance to the New World pest. Coffee rust appears to have spread from the Old World to the New World, but has been in Brazil since at least the 1970s.
Starbucks Corporation (NASDAQ:SBUX) will see success overseas, and I think its domestic strategies are brilliant. My feeling is that Teavana will be a huge victory for Starbucks once it really gets going. You should consider giving Starbucks at least two years to show you what it can do. On the negative side, the fungus does have me concerned. Starbucks is a roaster, not a grower. It is taking the fungus seriously. This does not appear to be an acute problem, but a chronic one that could get worse.
Fingers in Many Pies
I really like Coinstar, Inc. (NASDAQ:CSTR) as a company, and the Rubi machine that will dispense Seattle’s Best Coffee seems like a great idea. I still have not seen the machine in my area, but am eager to sample the coffee. Despite the Rubi being test-marketed in various places around the country, the revenue potential from this is apparently not built into guidance. That means there is a good chance that Coinstar could over deliver come earnings, if the Rubi really catches fire.