I'm all for constructive criticism.
I don't mind dishing it out. I also don't mind taking it.
"If you have nothing nice to say about a stock," my mother would say, "go ahead and bash it. Just make sure you come back with three stocks that would be better alternatives."
OK, maybe she didn't say that, but that's still just what I did last week.
This week's throwaway? Come on down, Starbucks (NASDAQ:SBUX).
Bad brews
The baron of baristas is a popular stock around Fooldom. A lot of people are cheering on CEO Howard Schultz in his prodigal return, including me. Unfortunately, it's not just a tall order to turn Starbucks around. It's a venti order.
Let's go over a few of the things working against the company right now.
- Earnings fell during the company's most recent quarter.
- Comps, which had always been positive during the company's heyday, have turned negative.
- Starbucks has beaten analyst profit targets just once over the past seven quarters.
- The company abandoned its breakfast sandwiches after they were killing the aromatic bean splendor of the shops. A good move for your nostrils, but a bad move for fans of incremental revenue.
- Nearly every fast-food chain and convenience store is pouring premium coffee, with many of them offering drive-through convenience and all of them offering heartier fare. The competition isn't just Dunkin' Donuts and McDonald's (NYSE:MCD) anymore.
- Lackluster results and years of overexpansion have the chain scaling back on the number of new stores it will open.
Believers will argue that none of these troubles are insurmountable. They will also argue that with shares having shed more than half of their value since peaking two years ago, the recent shortcomings have already been discounted.
However, analysts keep taking down their estimates as the company's prospects fade. Starbucks is now fetching a rather lofty 22 times this year's profit expectations. That's rich for a company looking to post lower earnings this year. Starbucks is also trading at a steep 19 times next year's uncertain turnaround income guesstimates.
Good news
I promised to have three alternatives for Starbucks in your portfolio. Here they are.
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Green Mountain Coffee Roasters (NASDAQ:GMCR). The bean bounces both ways, and analysts are ratcheting up this company's profit targets. Mr. Market is looking for earnings per share to soar by 48% this year and another 47% next fiscal year. No, Green Mountain isn't a cheapie -- it fetches a dear 37 times next year's projected profitability -- but this is the coffee growth stock that Starbucks investors are looking for.
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Apple (NASDAQ:AAPL). Steve Jobs' darling stock of a company is a Starbucks partner: The two hooked up to promote the unveiling of Apple's iTunes Wi-Fi Music Store last year. Free wireless connectivity may be less alluring to iPod jockeys now that Starbucks is teaming up with Apple partner AT&T (NYSE:T) to provide easier Wi-Fi access in its stores, but Apple is still the growth stock that Starbucks may never be again. With the iPhone's healthy monthly royalties leading the way, Apple's future is about to get even juicier.
- XM Satellite Radio (NASDAQ:XMSR). I'll be ruffling feathers with this one, but investors willing to take on heavy gobs of risk may warm up to XM. Starbucks used to have a cozy relationship with XM, when the satellite-radio provider beamed music into the coffee shops, but XM walked away from the deal back in January. XM has an uphill battle, but with an FCC decision on its pending merger with Sirius Satellite Radio (NASDAQ:SIRI) likely this month, and billions of dollars in synergy hanging in the balance, XM has some serious potential upside.
I'd say it's time to throw away Starbucks and invest that money elsewhere. But that's just my opinion. Fools should exercise their own due diligence before taking their last sip of this stock.
