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Summa Cum Latte at Starbucks

You can look for stock ideas anywhere. I mean it. Anywhere.

Take yesterday evening, when I was browsing through stories pulled by the RSS Reader built into my browser. There was plenty going on, of course. Nominations, insurgencies, business deals ... all of it was weighty and important. But then I ran across a Washington Post article that said that law students are going into hock on account of lattes.

I'm not joking. The story, which ran in Friday's edition, profiled one student who just graduated summacum laude and finds herself saddled with $115,000 in debt from student loans and -- get this -- a $3-a-day Starbucks (Nasdaq: SBUX  ) habit. I sympathize, sort of. I usually spend $3-$4 per week at my local cafe.

Interestingly, the Seattle University School of Law, from where this particular student graduated, frowns on the practice and has created a calculator to show just how expensive coffee can be when bought on credit. One estimate shows that forgoing lattes for 30 years creates more than $55,000 in savings. Having been more than $45,000 in debt myself, I applaud the Foolishness of the school.

But at the same time, I'm awed by the power of Starbucks. Indeed, when presented with the real price of her habit by the Post, the student merely brushed it aside, saying that she'd be crabby without her so-called "comfort latte." That's astounding, and it makes the Foolish investor in me take notice.

In sum: Starbucks is aiding and abetting millions of addictions, transforming each new customer into a potential addict. And that reminds me of another business whose customers also just have to have its product: Altria (NYSE: MO  ) .

I'll admit that a venti, no whip, half-caf caramel macchiato doesn't exactly conjure the image of a street corner-tough sin stock. But there's been no more popular addiction in the U.S. in recent years, which probably accounts for why Starbucks' stock has been more than a 10-bagger over the past 10 years. I'm betting our collective caffeine high will continue for decades to come -- or at least long enough for Starbucks to complete its plan to expand from 9,000 to 20,000 stores.

Will that expansion deliver similar multibagger returns to shareholders? Maybe, but it's worth noting that Starbucks' stock remains expensive at more than 150 times free cash flow, according to Yahoo! Finance. Still, I can't help wondering whether the nationwide movement against smoking has made caffeine our national addiction du jour. If so, Starbucks could assume the very profitable mantle that Altria has long held. How profitable, you ask? The stock of the cigarette king outperformed all its peers in the Standard & Poor's 500 from 1970 till now. Ponder that the next time you're waiting in line for a double-tall decaf latte.

To fill your cup with more fully caffeinated Foolishness:

Finding Starbucks early helped David Gardner earn stratospheric returns for the original Rule Breakers portfolio. Today, he and his Foolish band of analysts are applying the same approach to finding the next ultimate growth stock. Join the quest. TryMotley Fool Rule Breakersrisk-free for 30 days.

Fool contributor Tim Beyers drinks only unleaded coffee. Yep, even at Starbucks. Tim doesn't own shares in any of the companies mentioned in this story. You can find out what's in his portfolio by checking Tim's Fool profile here. The Motley Fool has an ironclad disclosure policy.

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Related Tickers

10/26/2016 11:16 AM
MO $64.39 Down -0.32 -0.49%
Altria Group CAPS Rating: ****
SBUX $53.63 Down -0.04 -0.07%
Starbucks CAPS Rating: ****