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Overrated/Underrated: Coffee Stocks

By Candice Novak
U.S. News

June 9, 2008

Overrated: Starbucks

In the past six months, coffee giant Starbucks has seen its stock go cold, falling by

some 25 percent. And with many consumers cutting their extravagant spending

(like $5 on mocha frappuccinos) the Seattle-based company has had to cut back,

too. It eliminated 600 jobs earlier this year and is planning to drop prices and sell

more drip coffee. Pat Dorsey, director of equity research at Morningstar, called the

poor performance projection a "big old bomb." He blames the weakening

consumer who "is cutting back on those $2 cups of coffee and $4 lattes."

The company predicts less growth in 2008 than in 2007. Starbucks plans to open

around 1,020 stores in the U.S. in the 2008 fiscal year, down from 1,799 in fiscal

year 2007. Starbucks says it wants to concentrate more on foreign markets.

Underrated: Green Mountain Coffee Roasters

Eclipsing Starbucks' weak coffee (stock) is Vermont-based Green Mountain

Coffee Roasters , which now stands around $40 per share, down from its a high of

$43 on May 30. Earnings per share are expected to go up 48 percent this year.

The once-obscure coffee maker is now a provider for McDonald's and Exxon

Mobil gas stations. Green Mountain embraced the demand for organic

beverages, partnering with Newman's Own Organic in 2005 to make organic

coffee available in 650 McDonald's restaurants. Alan Brochstein, founder of AB

Analytical Services, says Green Mountain "is about the only coffee investment

working these days."

Fuhgeddaboutit: Diedrich Coffee Inc.

After its sale of 40 stores to competitor Starbucks, Diedrich Coffee has been

sputtering. It has 153 stores left. The Irvine, Calif.-based company, which also

operates under the names Gloria Jean's and Coffee People, has seen its stock

tumble to $2 per share. The high in 2005 was $9.