Liquidity Preferences: Molson Coors vs. Starbucks

Despite the economic slowdown, or perhaps due to the pressures on beer drinkers from the slowdown, Molson Coors (TAP) reported better than expected sales and earnings for the recent quarter and the stock foamed up over 8%. TAP has been a position of mine for several months, up over 25% before the pop. The stock has appeared cheap relative to earnings and sales, had a nice pattern of improving earnings estimates from Wall Street and few short sellers willing to bet against it - and the news proved they were right to be cautious.

Before the Coors - Molson merger, Coors stock ticker was "ACCOB", or Adolph Coors Company Class B, but traders used to quip it was "A Cold Can Of Beer". "TAP" is the new moniker and apparently the merger is working well; the initial clash of the Coors and Molson cultures are integrating nicely. I will continue to hold the stock, hoping for sustained growth and good performance as more investors come around to the streaking Silver Bullet.

On the opposite side of the beverage stock performance spectrum is Starbucks, (SBUX). Though nothing major came out today, much has been reported on the company recently, its slow down in store growth, declining earnings, etc. Yet, the stock still appears over-valued, and I am short it. Even though the stock is down about 35% over the last 6 months, I still think it can go lower. Investors often don't embrace negative news about a company until its been re-affirmed again (and again) in the future. Thus, stocks with a pattern of declining earnings and surprises tend to underperform in the future, and I expect SBUX to be one of them.

With tough economic times and political uncertainty, consumers don't want to be wired from caffeine, they want a brew to take the edge off. I expect the TAP/SBUX performance divergence to continue.

Disclosure: Author is long TAP and short Starbucks

Comments

[User 190720:]

what a stupid article

2008 May 08 01:04 PM

[cswalker21:]

user 190720 summed it up nicely

2008 May 15 01:26 PM

[hedge10:]

You're comparing apples with oranges. In no way whatsoever are coffee and beer substitutes. The economic slowdown has caused consumers to have less discretionary income to spend on "designer" type coffee. The company is showing signs of a cyclical company that does poorly when the market is bad, and well when it's a bull market. The stock is at or near its bottom and will produce solid returns in the future when the market bounces back.

2008 May 15 05:42 PM