S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
How this AP photographer captured a unique splash at the swimming worlds with an underwater camera
AI Stock Caught Trading Under Secret Name (Ad)
Tax-free status of movie, music and games traded online is on table as WTO nations meet in Abu Dhabi
Delays in promised Western military aid to Ukraine are costing lives, the defense minister says
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Caribbean leaders meet with Haiti's prime minister. Foreign force deployment is on the agenda
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Stock market today: Asian shares mostly decline, while Tokyo again touches a record high
The Eiffel Tower reopens to visitors after a 6-day closure due to an employee strike
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
How this AP photographer captured a unique splash at the swimming worlds with an underwater camera
AI Stock Caught Trading Under Secret Name (Ad)
Tax-free status of movie, music and games traded online is on table as WTO nations meet in Abu Dhabi
Delays in promised Western military aid to Ukraine are costing lives, the defense minister says
Free Stock Analysis Report: See The True Value of Any Stock (Ad)
MILAN FASHION PHOTOS: Feben, Rave Review promote looks for women of all shapes, ages and sizes
Caribbean leaders meet with Haiti's prime minister. Foreign force deployment is on the agenda
Free Stock Analysis Report: See The True Value of Any Stock (Ad)
Stock market today: Asian shares mostly decline, while Tokyo again touches a record high
The Eiffel Tower reopens to visitors after a 6-day closure due to an employee strike
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
How this AP photographer captured a unique splash at the swimming worlds with an underwater camera
AI Stock Caught Trading Under Secret Name (Ad)
Tax-free status of movie, music and games traded online is on table as WTO nations meet in Abu Dhabi
Delays in promised Western military aid to Ukraine are costing lives, the defense minister says
Free Stock Analysis Report: See The True Value of Any Stock (Ad)
MILAN FASHION PHOTOS: Feben, Rave Review promote looks for women of all shapes, ages and sizes
Caribbean leaders meet with Haiti's prime minister. Foreign force deployment is on the agenda
Free Stock Analysis Report: See The True Value of Any Stock (Ad)
Stock market today: Asian shares mostly decline, while Tokyo again touches a record high
The Eiffel Tower reopens to visitors after a 6-day closure due to an employee strike
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
How this AP photographer captured a unique splash at the swimming worlds with an underwater camera
AI Stock Caught Trading Under Secret Name (Ad)
Tax-free status of movie, music and games traded online is on table as WTO nations meet in Abu Dhabi
Delays in promised Western military aid to Ukraine are costing lives, the defense minister says
Free Stock Analysis Report: See The True Value of Any Stock (Ad)
MILAN FASHION PHOTOS: Feben, Rave Review promote looks for women of all shapes, ages and sizes
Caribbean leaders meet with Haiti's prime minister. Foreign force deployment is on the agenda
Free Stock Analysis Report: See The True Value of Any Stock (Ad)
Stock market today: Asian shares mostly decline, while Tokyo again touches a record high
The Eiffel Tower reopens to visitors after a 6-day closure due to an employee strike

Grab Starbucks on the dip before coffee futures fall

starbucks stock price

Key Points

  • Starbucks stock is underperforming its peers, and there is no other reason than a robust fundamental relationship in its costs.
  • Coffee beans have ripped a new rally lately, squeezing profits at America's favorite brewer. However, it doesn't mean all bad news.
  • Whether a new buy or a dip-add, there are ways for you to protect your shares against further swings in the price of coffee.
  • 5 stocks we like better than Starbucks

The stock market has been on a wild ride so far this year, with wild swings and emotional roller coasters. Don't you remember when everyone was scared of a recession once the FED began raising rates? And how about the banking crisis that took down a few institutions?

Now, the S&P 500 closed the month of November on a very bullish note, meaning that most stocks that are not making 52-week highs have some catching up to do, and who better to attract buyers on a recent dip than Starbucks NASDAQ: SBUX?

Regarding retail stocks, only a few are experiencing the price action seen in Starbucks, meaning the problems brewing in this stock must be company-specific rather than one with the entire space. The answer: coffee beans are on the rise, but that doesn't mean you can't hedge.

Bargain hunting 

Keep in mind that the gross margins at the coffee giant are mainly driven by the cost of the product they are brewing every day. According to the Intercontinental Exchange NYSE: ICE, the price of coffee bean futures has gone up from roughly $177.7 to today's $183.1, a bump of 3.0%.

While this may not seem like an alarming rise, some believe there could be more to come, as the crop levels coming out of Vietnam seem to be getting squeezed thinner by the day. This could be bad news for those already owning Starbucks and good news for those looking to buy it.


You see, while it is a no brainer that more expensive raw materials will squeeze margins - and ultimately earnings - at Starbucks, there are ways for you to still potentially buy the stock and cover yourself in case the cost of coffee beans does keep rising.

After all, what if you decide to sit and wait for the stock to find a potential bottom out of fear that coffee beans shoot up, only to wake up one day and see Starbucks meet its analyst price targets of $114.5 a share? That's a whole 20.0% you'd be missing out on, by the way.

So, pretend you already own the stock today, and despite facing a 20% upside, there is the growing worry of earnings being chiseled down by the cost of coffee beans. Here's what you can do to ease the pain.

Gap to close

Consider other stocks in the space, like Chipotle Mexican Grill NYSE: CMG, that enjoy the seeming immunity to the business cycle alongside deep brand name penetration, making them a consumer favorite in their common - though unique - everyday products.

Chipotle stock is trading basically at its 52-week high, which makes it the prime example of what other stocks like it - e.g. Starbucks - should be experiencing today. Starbucks is offering a steep discount on this measure, as its price action shows it trades at only 84.0% of its 52-week high.

There is absolutely no reason, other than rising costs of coffee beans, for Starbucks stock to be such a lagger in this space, especially when you realize that its product is as defensive as it gets, it's a daily ritual for most people!

Knowing what you know now, between analyst bullish sentiment and targets, as well as the technicalities of price action, it is time to figure out how to protect your capital in case it is already exposed to Starbucks stock; otherwise, how to structure a safer investment in it. 

By comparing Starbucks's stock chart against the iPath Series B Bloomberg Coffee Subindex Total Return ETN NYSEARCA: JO, you can see where the relationship is between the price of Starbucks versus this fund, whose performance is directly tied to the performance of coffee bean futures.

Noticing a seemingly negative relationship, meaning that Starbucks tends to rise when the futures fund declines, it would be ideal to place some of your capital in the fund as well.

If Starbucks stock were to drop due to a rise in the cost of coffee (as it is today), your P/L would be protected by a long in the fund simultaneously.

This insurance can calm your nerves if you already own the stock and are afraid of selling it only to see it rally to analyst targets. Now suppose you don't already own it.

In that case, you can rest assured that this is a silver bullet you can fire at any time during the entry or management of your potential new investment.

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Should you invest $1,000 in Starbucks right now?

Before you consider Starbucks, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Starbucks wasn't on the list.

While Starbucks currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Click the link below and we'll send you MarketBeat's guide to investing in electric vehicle technologies (EV) and which EV stocks show the most promise.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Intercontinental Exchange (ICE)
4.918 of 5 stars
$138.38-0.7%1.21%32.95Moderate Buy$144.00
iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO)N/A$54.00flatN/AN/AN/AN/A
Chipotle Mexican Grill (CMG)
4.1928 of 5 stars
$2,646.72+0.7%N/A59.68Moderate Buy$2,469.88
Starbucks (SBUX)
4.9411 of 5 stars
$95.62-0.2%2.38%25.57Hold$111.43
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


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