There are two stocks that I am waiting for a pullback to purchase more shares of. The first stock on my list is Ford (F), obvious pick after it has begun to pullback following its Q4 earnings. However, the second stock on my list is Starbucks (SBUX). I am extremely impressed with this company and some of the decisions and acquisitions it has made. I believe 2013 is going to be a huge year for this stock for multiple reasons, but mainly for their new entry into the tea market.
Starbucks is profiting largely from its single serve beverage machines. Since last fall, the company has already sold 150,000 of these machines known as the Verismo ($200-400 each unit). These machines put Starbucks in the competitive marketplace with Green Mountain Coffee Roasters (GMCR) Keurig product and further expand Starbucks profitability. Starbucks believes this new line of business will translate into a multi-billion dollar division for the company.
My second reason, and primary reason for wanting Starbucks, is easily the new Teavana acquisition. Teavana is a tea shop where consumers can purchase both single servings of ready-to-go tea and different flavors of tea in bulk. I had recently been to a Teavana at the mall and thought it was an impressive idea, however it was lacking something. I think Starbucks will be able to take Teavana and mold it into a successful franchise both in the United States and globally.
Starbucks only paid about $600 million for the Teavana franchise and acquired over 300 stores around the United States. Starbucks will look to add about 30 more locations alone this year. Tea is not the most popular drink in the United States, however I think more and more people are beginning to drink tea. Tea, especially green tea, is raved by media sources for its high antioxidant content and health benefits. I believe that we will see more and more American's reaching for tea over the next decade; not to mention the high amounts of tea drinkers globally that Starbucks could now attract.
Some impressive statistics that I found on tea sales in the United States were that total tea sales have increased from $1 billion annually to $5 billion over the past 10 years. People have been more adept to buying specialty teas too, rather than strictly black tea. Teavana offers a wide variety of teas and tea additives. They carry black, white, green, oolong, herbal, rooibos, and even mate tea. They also offer special additives your tea as well such as cinnamon, ginseng, acai berries, honey, and other herbal additives.
Teavana understands that people in the United States are not as accustomed to brewing tea as perhaps the Chinese culture may be. Teavana offers brewing directions and equipment to its customers to help them brew their own tea. One major improvement that Starbucks will probably need to address with Teavana though is how to deliver premium tea at a lower rate to the consumer. The tea prices are much more than tea at a Whole Foods Market (WFM) or any other store. While Teavana does offer a better variety of bulk teas, I just can not see the consumers regularly paying $12 per 2 ounces of tea while they could buy it about half price anywhere else. I trust Starbucks will address this issue though and make the necessary changes to make Teavana a winner.
My final reason for planning to buy Starbucks on a pullback is because of the companies aggressive plan for China. Starbucks plans to add 1,500 new shops in China by 2015. Starbucks know it has a huge untapped market over in China and it plans on pushing full throttle to expand profitability over there. China sales increased 11% in 2012. Starbucks has the making of a McDonald's (MCD) all over again in China based on their aggressive desire to expand.
These are my top 3 reasons for owning Starbucks and I did not even mention the companies local success or its 7% growth rate in America. There are just so many positives that I see with this company at the moment, ideally I would like to buy Starbucks under $55 per share. Sure, that might seem high at the current moment, however Starbucks is a premium company, with premium growth, so it deserves a higher P/E multiple, which currently resides slightly above 30. Put this stock on your pullback list, and snatch it up the next time the market dips. Teavana will be a winner, as tea popularity grows rapidly in America.
Disclosure: I am long F.