Coffee prices have surged by nearly 63% year-to-date, due primarily to a demand-supply imbalance. Extreme drought and unexpected frost in Brazil, along with shipment delays, have caused supply shortages. But the demand for…
this beverage has remained high, especially among millennials.
Investors’ interest in coffee has remained high, as evidenced by the iPath Series B Bloomberg Coffee Subindex Total Return ETN’s (JO) 31.6% returns over the past six months compared to the SPDR S&P 500 Trust ETF’s (SPY) 9.8% gains. Shipping disruptions are expected to keep coffee prices high for some time. According to Trading Economics, coffee is expected to trade at 179.67 USD/Lbs by year’s end.
Therefore, we think it could be wise to scoop up the shares of quality coffee stocks Starbucks Corporation (SBUX – Get Rating) and Restaurant Brands International Inc. (QSR – Get Rating), which hold solid growth prospects. However, Luckin Coffee Inc. (LKNCY – Get Rating) and Krispy Kreme, Inc. (DNUT – Get Rating), having weak financials, are best avoided now.
Stocks to Buy:
Starbucks Corporation (SBUX – Get Rating)
One of the world’s largest coffeehouse chains, SBUX in Seattle, Wash., operates through three segments: Americas, International, and Channel Development. Its offerings include coffee and tea beverages, roasted whole bean and ground coffees, single-serve, and ready-to-drink beverages.
On July 28, SBUX, in partnership with Caribbean Coffee Traders Limited (CCTL), announced the arrival of the first Starbucks in Barbados. Ricardo Rico, the general manager of SBUX Latin America and the Caribbean, said, “We are confident that, together, we will provide value to our customers in a way that celebrates local culture and coffee traditions, while creating a positive economic impact in the communities of Barbados.”
SBUX’s total revenues increased 31.3% year-over-year to $8.15 billion in its fiscal fourth quarter, ended October 3, 2021. Its operating income was $1.48 billion, representing a 165.5% year-over-year rise. Its net income came in at $1.76 billion, up 349.4% year-over-year, while its EPS increased 351.5% year-over-year to $1.49.
Analysts expect SBUX’s revenue and EPS to increase 10.3% and 15.1%, respectively, year-over-year to $32.06 billion and $3.73 in its fiscal year 2022. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 15.3% in price to close yesterday’s trading session at $113.20.
SBUX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
SBUX has a B grade for Growth, Momentum, Sentiment, and Quality. Within the Restaurants industry, it is ranked #3 out of 44 stocks. Click here to see the additional POWR Ratings for Value and Stability for SBUX.
Restaurant Brands International Inc. (QSR – Get Rating)
QSR owns, operates, and franchises quick-service restaurants under the Tim Hortons (TH), Burger King (BK), and Popeyes (PLK) brands. The Oakville, Canada, company’s offerings include blended coffee, tea, espresso-based hot and cold specialty drinks, donuts, muffins, cookies, and pastries.
On October 25, 2021, José Cil, the CEO of QSR, said, “Our big goal is to drive business growth without carbon growth. I’m so proud of the team’s work to set ambitious goals to reduce our carbon footprint in the world. We have exciting and important…
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