3 Reasons to Sell Starbucks Now

A sputtering economy, implosions at financial institutions, or just plain bad management -- on any given day, investors can name a number of reasons to sell a stock. Yet while panic never benefits investors (unless they're calmly snapping up values while others freak out), it's good practice to play devil's advocate with investments from time to time.

In Motley Fool CAPS, more than 115,000 members have weighed in on more than 5,400 stocks, sharing bullish and bearish opinions alike.

In the case of coffee retailer Starbucks (Nasdaq: SBUX  ) , a total of 7,038 members have weighed in on its chances of success. I've already plucked out some of the bullish rationale backing Starbucks today, so here are three counterpoints to consider, courtesy of CAPS.

Changing consumer spending
In dark times for consumers, as shoppers start flocking to discount stores like Costco (Nasdaq: COST  ) and Wal-Mart (NYSE: WMT  ) , consumer spending habits are changing. Small luxuries like Starbucks could get bumped off the list of priorities. A drawn-out recession could do serious harm to consumer-driven companies like Starbucks or Whole Foods Market (Nasdaq: WFMI  ) , as price wars press the top line and commodity-price increases pinch the bottom.

Losing profitability
Many investors believe Starbucks' solid margins are a thing of the past. As beverage giants like Coca-Cola and PepsiCo (NYSE: PEP  ) struggle with sales volume, Starbucks' operating profits have been sliding in recent quarters, even with the return of chairman Howard Schultz to the CEO spot.

Saturated market
Unlike 20 years ago, coffee shops are found everywhere now. In a market with low barriers to entry, everyone from McDonald's (NYSE: MCD  ) to Jack in the Box is trying to take market share from Starbucks with cheaper fancy coffee drinks. Starbucks has even helped create its own competition, since some drinkers now opt for a cup of Green Mountain Coffee Roasters (Nasdaq: GMCR  ) coffee brewed at home.

Of course, Starbucks has survived and thrived despite dozens of obstacles over the years. But given all the questions about whether this company's best days are over, CAPS' stockpile of bearish and bullish opinions can be great resource to augment your own analysis.

To see what the very best CAPS members are saying now about Starbucks, just click on over to Motley Fool CAPS and have a look -- it's all free, and even open to your opinion.

More Foolishness:

On Oct. 7, 2008, Fool co-founder David Gardner and his Motley Fool Pro team invested $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

Jack in the Box is a Motley Fool Hidden Gems Pay Dirt selection. Wal-Mart Stores, Starbucks, Coca-Cola, and Jack in the Box are Inside Value picks. Whole Foods Market, Starbucks, and Costco Wholesale are Stock Advisor picks. The Fool owns shares of Starbucks.

Fool contributor Dave Mock honestly doesn't know what a pig in a poke is. He does knows he owns shares of Starbucks. The Fool's disclosure policy never chases a flyer, sticks its neck out too far, or wrestles with buttered pigs.


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  • Report this Comment On October 13, 2008, at 4:56 PM, c0ffeen0te wrote:

    Good articulation of the headwinds -- but exactly how do you know whether or not its included already in the market? Let's bear in mind this stock is already down about 70% from its peak so all this isn't exactly brand new to the market.

    I'm not saying buy it, I'm just saying the market is trying to guess at a fair valuation being aware of these (and many other ) factors

    In a related note, the 1-3 Browns should lose to the undefeated Giants tonight but do you give the 8 points the market is demanding?

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