Playing Year-End Tax-Selling With Starbucks

Starbucks (SBUX) $21.20) came up on my year end tax selling screen so I decided to take a look at its valuation. Everyone loves to hate Starbucks. The stock as been on a one way ticket to hell falling nearly 50% from its highs created by what I'd like to call the Starbucks Bubble). In my experience, when stocks go down like this (deflating a bubble) the stopping point tends to be a 50% drop.

But that is not why I chose to buy the stock here. I bought Starbucks Friday because it represents value at only 19 times next years earnings. The stock also gains from the deflated dollar as its earnings overseas are increasing.

Disclosure: I own Starbucks (SBUX). My last trade in Starbucks was as sale at a split adjusted price of $30 a share back in Jan of 2005. (Yes, I missed the bubble). I may buy more Starbucks and buy or sell options on Starbucks in the next few weeks. I almost never drink Starbucks coffee unless I am on the road. Greenwich Village (where I live) has too many quality alternatives where the owner of the cafe will be frothing my latte; my favorite is Grounded on Jane Street. The Berkshires, location of my second home, is another place with lots of alternatives and few Starbucks stores. That leaves travel and road trips for when tend to consume Starbucks. And heck, I like it. I like their Sandwiches and I like that they try to make fair trade cool. I could criticize for some corporate behavior but relative to most they are great in terms of benefits, fair trade and store ambiance.

Comments

[dNova]

Why would anyone be dumb enough to buy a stock that is aggressively going down?

I own SBUX too ... PUTS !!!

That being said, I love Cramer.

Guys like you and him make sure that I keep raking in the SBUX and other peoples' dough.

I can always bet against Cramer and make money. Maybe you will be my Little Cramer.

[eurohero]

Thanks for your comments regarding SBUX. Like you, I prefer my neighborhood coffee haunts when I can get them, but SBUX is an excellent alternative. In my experience, the stores are invariably tasteful and clean (bordering on the antiseptic if any), and they have a freaky ability to hire attractive baristas, which doesn't hurt! The share price at $40, in retropsect, was insanity, pure and simple. I have a lot of concerns about buying a stock that is in a full-fledged collapse, and so I'll pass for now, hoping to see it at $13-$15. I'm prepared to go on living without SBUX if it never gets there. Just my humble opinion.