Saturday, July 9, 2011
Coffee Stocks: Don't Burn Your Fingers
Anything related to coffee has been hot recently. There are some fundamental reasons for this: bean prices have been dropping, people are drinking more specialty coffee, the k-cup business is becoming big. However, it seems to me that there is a lot of speculative moves: be careful.
GMCR has been one of the best performers of the decade. Their meteoric rise has fueled the search for the next great coffee stock.
Several coffee-centric restaurant stocks have done well over the last year: SBUX, THI and CBOU. Even "fallen angel" KKD is rising nicely.
Things start to get a bit strange when we hit the bean roaster side of the business. Here's PEET, the company that locked horns with GMCR over the legendary DDRX acquisition (DDRX was a fortunate k-cup license holder and was acquired at $35/share after trading in the sub $1-level less than a year prior to that).
And now we are deep in bizarro world. JVA sells coffee to GMCR (as they have been for a while). Somehow this became explosive news recently.
But they are not alone: heavily promoted JAMN and under-the-radar JCOF have also had spectacular runs recently:
Which leads to today, when a small water distributor with a coffee operation just blew up:
Don't burn your fingers.
Posted by Barbarian Capital at 03:56