Stock Madness Elite 8: Starbucks

Starbucks vs. Dolby

Ah, March. Hoops, gambling, and the Fool's Stock Madness Tournament. After co-captaining Team Sasol to a stinging Championship Game loss in 2007, I'm out for blood. This year, I'm championing a company with an iconic brand, a beaten-down share price, and the makings for a strong second wind: Starbucks (Nasdaq: SBUX  ) .

The history of Starbucks is one you probably know well. Boy meets coffee. Boy sells coffee. Boy builds brand. Boy leaves coffee. Coffee goes cold.

Boy comes back
And in a big way. The recent return of Starbucks patriarch and Chairman Howard Schultz to the CEO's chair wasn't a mere symbolic gesture. An emboldened Schultz is moving quickly to refocus the company on its core offerings and in-store experience. And, of course, he's looking to caffeinate Starbucks' downtrodden shares.

But before I spill the whole bag of beans on why Starbucks strikes me as such a compelling opportunity, let me quickly introduce Starbucks' first-round opponent: Dolby Labs (NYSE: DLB  ) . Dolby is a great company. There, I said it. Then again, Dolby is priced like a great company, while shares of the still-growing coffee giant sit at a four-year low. But I digress: You didn't come here to read about Dolby any more than I did to write about it.

Why Starbucks?
The case for Starbucks is compelling and multifaceted, but I'll serve it up in a triple espresso format.

First, as I mentioned, Schultz has already made several brand-centric moves in his second tenure as CEO. His initiatives have included phasing out the ill-fated breakfast sandwich line, offering free Wi-Fi service to customers via a partnership with AT&T (NYSE: T  ) , and recently acquiring a company that manufactures a machine that, per Schultz, "delivers the best cup of brewed coffee I have ever tasted." That's shockingly high praise from the high priest of coffee, and the acquisition itself reflects Starbucks' renewed focus.

Second, concerns over rising competition from the likes of fry king McDonald's (NYSE: MCD  ) and small fries such as Caribou Coffee (Nasdaq: CBOU  ) and Peet's Coffee & Tea (Nasdaq: PEET  ) are overblown. Let's be real: McBaristas will be serving to a different demographic than Starbucks does. (I invite you to visit locations of both chains to confirm it for yourself.) And for perspective on Starbucks' place within its niche, consider that Caribou's and Peet's combined revenues are equal to only 5% of Starbucks'. Know your role, Peet.

And finally, remember that Starbucks still has plenty of room to grow, both here and internationally. Even after prudently scaling back its domestic-store growth targets, Starbucks still plans to open 1,175 net new stores in the States this year. And in 2009, the company plans to open more stores abroad than domestically for the first time in its history.

Wake up and ... you get the drift
Those are but a few reasons why I'm confident Starbucks is your eventual Stock Madness 2008 champion. To continue seeing Starbucks light up the scoreboard, head on over to Motley Fool CAPS and cast your vote for Starbucks. See you in the Final Four!

Ready for Stock Madness? Who's going to take home the trophy? See the rest of this year's bracket.


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