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Green Mountain Coffee Roasters Inc. (GMCR), Starbucks Corporation (SBUX): You Drink It Every Morning; Why Not Invest in It?

According to a recent study done by the National Coffee Association, the number of coffee-drinking adults in the U.S. has grown to 83% this year. This percentage is up from a 2012 level of 78%. The same study also found that the amount of adults who drink coffee daily rose to 63% from the 58% level in 2011. With the U.S. leading the world as the largest coffee consumer, an investment today could see substantial returns as that number increases domestically and internationally.

Currently, the U.S. is the largest coffee consumer, but in per capita numbers it ranks 26th in the world at 4.2 kg of coffee consumed per person per year. The number-one consumer per capita is Finland, with 12.0 kg. That is nearly three times the U.S. This shows that there is still room for growth in the states. Also, notable countries with less per capita consumption are Russia with 1.7 kg,  Mexico 1.2 kg, and China and India with less than 0.4 kg. These highly populated countries could be crucial in the growth of coffee consumption.

Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)

Leading brands

Anyone who drinks coffee regularly knows the brand name Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). This company busted on the scene a few years ago when it purchased Keurig, the single-cup coffee brewer. Green Mountain’s main focus is on specialty and organic Arabica roasted coffee through three different brands.

Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has had substantial revenue growth over the past few years but has recently seen performance slow and level off mainly due to weakening demand for its brewers and portion packs. This caused concerns among many shareholders because they as well as the company thought the strong growth would continue well into the future. Although Green Mountain’s revenue growth has slowed, it is still rising as can be seen below from the revenue growth comparison chart.

Future outlook

Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is anticipating between 11% and 14% net sales growth for the full-year 2013. If net sales continue to grow at this pace, investors will see above- average returns. One of the drivers of future growth will come from Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s international investments. The company recently announced through its Green Mountain Canada subsidiary that it will be investing CAD$55 million in its production facilities in Montreal over the next three years.

An added bonus came from the government of Quebec, which is contributing an additional CAD$5 million in non-repayable funds for the project. By the end of 2014, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) is anticipating between $300 and $400 million in free cash flow. This will help the stock with future growth as the company will have more cash on hand to invest.

Dunkin Brands Group Inc (NASDAQ:DNKN), mostly known for its franchise Dunkin’ Donuts, is a world wide leader for its quick-service restaurants serving hot and cold coffee along with baked goods, breakfast sandwiches and hard-serve ice cream through its Baskin-Robbins brand. There are currently more than 10,400 Dunkin’ Donuts and around 7,000 Baskin-Robbins. Dunkin’ Brands also has a presence in retail-coffee sales with whole beans, ground coffee and single k-cup coffee.

Ability to adapt and survive in difficult times

One of the factors that impresses me about Dunkin Brands Group Inc (NASDAQ:DNKN) is its business sense and resilience. The recession ended its streak of 45 consecutive quarters of store-sales growth with quarterly declines of -0.8% and -1.3% in 2009.

Since 2009, it has not had another negative quarter of comparable-store sales growth. Dunkin’ Brands also impressed me a few years ago with its push in cold drinks. During hot summer months, hot coffee doesn’t hold the same appeal. Dunkin’ Brands was able to refocus its strategy during this time to keep customers coming in.

Future outlook

In 2012, Dunkin Brands Group Inc (NASDAQ:DNKN) opened 291 new restaurants for a net growth rate of 4%. It is focused on continuing its expansion across the U.S. and intends to eventually double its U.S. footprint. That factor, along with increased sales from existing restaurants, will well position this stock to see above-average returns in the future.

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