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Is Green Mountain Coffee Roasters a Stock for the Long Term?

Being able to retire rich, or at least comfortable, is the goal of almost any investor. However, it's much easier said than done. In a recent Wells Fargo survey, respondents between the ages of 50-59 said that they had, on average, about $29,000 saved up. With pensions all but gone, and Social Security targeted for cuts in the future, it's hard to count on anyone but yourself. But $29,000 isn't going to cut it for most people, so you've got to get involved in the stock market in order to grow that nest egg. Getting in the game is the easy part; choosing the right stocks is the hard part.                                               

Making prudent decisions
Generally speaking, I look for four traits in a retirement stock:

  1. Valuation: Investors of all ages want to make sure they're not overpaying for a stock, but this matters even more in retirement. Retirees don't have the long time horizon that younger investors have, so it's essential to make sure you don't overpay in the short term.
  2. Dividends: Most retirees need a combination of both growth and income, as they'll be depending more and more on their portfolio to help with everyday expenses. Companies that pay dividends not only offer immediate income, but they've also proven to outperform non-paying dividend companies over long periods of time.
  3. Growth: Investors love dividends, but everyone wants to see their stocks rise over time. Growth can be as big a part of your portfolio as a steady dividend. It's important to note that you don't need a high-flying stock that's going to shoot to the moon; a company that can grow and outperform the market is hard enough to find, so steady growth is highly covetable.
  4. Low volatility: Retirees want to invest in great growth stocks just as much as anyone else, but they also want to be able to rest well knowing that their portfolio won't be taking them on a roller-coaster ride. At the end of the day, most retirees would rather own a sturdy company that lets them sleep at night than a company that whips up and down with the gyrations of the market.

Although some companies are definitely more geared toward retirees, which companies you choose to invest in will be dictated largely by what you already have in your portfolio. Small, mid, and large caps can all play a role in your investing strategy, so I chose to evaluate all varieties of stocks in this regular series.

So how does Green Mountain Coffee Roasters stack up?
In order to check out the valuation of Green Mountain Coffee Roasters (Nasdaq: GMCR  ) , we don't want to look at only its P/E ratio of 96.3. That may seem expensive, but really we don't know without looking at the ratio in historical context. Over the last five years, Green Mountain Coffee Roasters' average P/E ratio has been 57.7, which is less than the current ratio. This suggests that investors may be paying more than they've had to in the past, so it's important to find out why the price tag might be a bit higher today.

Green Mountain has no dividend. This isn't all that surprising for such a growth stock; often times the company will focus on business initiatives or share buybacks instead of a dividend.

Next, we want to ensure that Green Mountain's stock has the ability to rise over the next five, 10, or 20 years. A company that's growing its net income has the best possible chance to see its share price rise over time. Of course, we can't predict the future, but we can look back to get an idea of how the company has performed in the past in order to try to ensure future earnings growth. Over the past five years, Green Mountain has grown its net income by 64.5% annually. That's pretty significant considering all of the market turmoil in the last few years. Of course, this doesn't mean that growth will continue, but it's a great sign that the company can prosper in the face of difficulty.

One of the best measures of volatility is called beta. Beta measures the impact that the movement of the stock market will have on a particular stock. For instance, a beta of 1.0 signifies that Green Mountain will move in tandem with the market; a beta of 2.0 means that the stock will move up twice as much as the general market, and vice versa. In this particular case, Green Mountain has a beta of 0.7, which is pretty low. Generally speaking, I like to see a beta below 1.2 for retirees. In this case, Green Mountain fits the bill.

Let's look at the competition
We've taken a look at Green Mountain Coffee Roasters, and maybe you think it's passed all the tests, or maybe you just don't feel comfortable with the results. Either way, it's beneficial to see how a company stacks up in its industry, because it's just as important to understand a company's competitors as it is to understand that particular company. Here are Green Mountain's stats when compared to three of its closest competitors:

Company

Current P/E

Dividend Yield

5-Year Net Income CAGR

1-Year Beta

Green Mountain Coffee Roasters 96.3 0% 64.5% 0.7
Starbucks (Nasdaq: SBUX  ) 25.6 1.4% 14.7% 1.1
Peet's Coffee & Tea (Nasdaq: PEET  ) 32.5 0% 13.5% 0.7
J.M. Smucker (NYSE: SJM  ) 18.0 2.3% 31.2% 0.6

Source: Capital IQ, a division of Standard & Poor's.

Each company has traits to like and traits left to be desired. Either way, it's beneficial to look at the industry picture and not just Green Mountain in isolation.

Of course, I can't decide for you whether or not this is the best stock for retirement, but it has passed two of the four tests, which shows this stock has promise. It doesn't necessarily mean this stock is a slam dunk, but it has shown its ability to reward shareholders and that means it could have a place in your portfolio.

Interested in adding any of the companies above to your watchlist? Click below to get the latest commentary and analysis.

Worried about which stocks you should chuck from your portfolio and which ones should stay? Read "Toss These 3 Stocks Out With the Trash."

Jordan DiPietro owns no shares mentioned here. The Fool owns shares of Wells Fargo. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks and Green Mountain. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain. Motley Fool newsletter services have recommended shorting Green Mountain and Peet's Coffee & Tea. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 23, 2011, at 11:56 AM, JBG189 wrote:

    GMCR is a stock for anyone who wants to get rich. Their k-cup product has total patent protection all the way until September 2012. You can't get a better moot than a patent! I think the P/E ratio is little cheap right now. It only prices in 1 machine per household, but many people will get two machines for their house (e.g., kitchen and home office or garage), and that doesn't even count the offices. My office just switched to Keurig machines. 3 machines and 300 people, that's another 0.01 machines per person! They currently lose money on the machines, so stock up now, because come Sept. 2012 they may have to price them to make a profit, but the purchase rate should continue to grow, because fierce competition will drive down the price of K-cups (with generic / starbucks k-cups) after 9/12, so people will still be motivated to buy the machines. Will the P/E double? Eh, maybe, but probably not. I think a p/e of 160 to 170, or roughly double amazon.com's p/e is appropriate here.

  • Report this Comment On June 23, 2011, at 12:45 PM, warrenneill wrote:

    JBG189, you're being sarcastic, right? Sorry, my mind is a little fuzzy today and I just had to make sure.

  • Report this Comment On June 23, 2011, at 12:56 PM, JBG189 wrote:

    Disclosure: Heavily sarcastic and heavily short GMCR.

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Related Tickers

10/22/2014 11:23 AM
GMCR $147.71 Up +3.07 +2.12%
Keurig Green Mount… CAPS Rating: **
PEET.DL $0.00 Down +0.00 +0.00%
Peet's Coffee & Te… CAPS Rating: *
SBUX $74.97 Up +0.61 +0.82%
Starbucks CAPS Rating: ****
SJM $103.00 Up +0.61 +0.60%
J.M. Smucker CAPS Rating: *****

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