It's time to start drinking coffee stocks again.
Peet's Coffee & Tea
The shares opened at $73.50 and quickly went on to trade as high as $74.25. The movement indicates that investors believe a bidding war may break out, but that doesn't seem likely. The board unanimously approved the deal, and it's going to be hard to smoke out a higher offer than the only one on the table that valued Peet's at a whopping 42 times this year's projected earnings and 32 times next year's bottom-line target.
The smarter play at this point would be in snapping up the other names in premium coffee as potential buyout fodder, but you're probably too late to dabble in those sympathy plays.
Even though the market opened sharply lower this morning, shares of Coffee Holding
Cynics will argue that investors are wrong to be chasing the premium coffee specialists, but the valuations are certainly tempting. If Peet's is worth 32 times next fiscal year's earnings, how outlandish can Coffee Holding, Caribou Coffee, and Green Mountain be at multiples of 7, 19, and 6, respectively.
Coffee Holding and Green Mountain may be fetching forward multiples in the single digits, but they're growing faster than Peet's. Coffee Holding even pays a quarterly dividend as patient investors wait things out.
Naturally, investors shouldn't buy into any stock solely for the buyout potential. However, if the valuations are compelling enough to believe that individual players will do just fine on their own -- especially in light of a generous buyout that elevates the perceived value of the niche itself -- sympathy plays can be smart plays.
Brew ha ha
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The Motley Fool owns shares of Green Mountain Coffee Roasters and Starbucks. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters and Starbucks. Motley Fool newsletter services have recommended writing covered calls on Starbucks. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.