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I'm applying to become a bank holding company / Starsucks is symbolic of what is wrong with America

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November 11, 2008 – Comments (5) | RELATED TICKERS: AXP , SBUX

Goldman Sachs, Morgan Stanley, American Express, and now Deej.  That's right, since everyone and their mother is applying with the government to become a bank holding company I've decided to open the Bank of Deej so that I too can have access to the cheap funds that the Fed is throwing around. 

Just like AmEx, I will make sure to cite "emergency conditions" in my application with the Fed.  American Express is applying with the Fed for access to cheap money because "it's seen the value of its primary assets decline," making it harder for it to borrow money to pay for its daily operations.  Wow, what a coincidence, the same thing has happened to me. 

AmEx hopes that access to cheap government funds will provide it with "maximum flexibility and stability in this challenging economic environment."  Sign me up.  I could do some amazing things if I was able to borrow money at 1% to 2%, with bond and dividend yields sitting where they are right now.  I feel like I'm the only one out there who isn't getting free money from the government, so if someone couple provide me with a link or fax me an application...I'm in.

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Is it just me, or is anyone else confused by why anyone would have purchased stock in Starbux (SBUX) over the past year.  I hear people suggesting that it is a good buy from time to time and I am completely confounded.  How on Earth can anyone buy stock in this company right now?  Starbux is symbolic of what's wrong with America, we're lazy and wasteful. 

Setting aside the fact that I can't stand the taste of the Company's coffee, why would anyone purchase a cup of Joe for five bucks or whatever it costs there when they could brew one at home for a few pennies (like I do) or buy a cup at Dunkin Donuts / McDonalds for half the price? 

Consumer spending is in big trouble, and one if the easiest places for someone to cut back is overpriced coffee.  Many people are arguing that consumers are in the first inning of a long, drawn out replenishment of their balance sheets.  Even if you don't believe that savings rates will rise, people certainly will have less money in the near future.  Think about it, where does the money that you spend come from?  Your job, your investments, and your home.  Are any of these things worth more or more stable today than they were a year ago?  No.  The unemployment rate will likely approach double digits, at best home prices will slow their rate of decline but still continue to fall or sit on the bottom, and anyone who is here has seen what has happened to the stock market.

I'm far from a perma-bear and I believe that people who purchase the right stocks today will be very happy that they did so several years from now, but Starsucks is not one of these companies.  Not only does it seemed to have lost much of its trendiness, but consumers are also cutting back.  Heck, the company isn't even cheap.  At yesterday's close it was trading at 16 times its trailing, and those earnings are falling fast. 

In its fiscal fourth quarter, SBUX earned a lousy penny per share, sure excluding charges to shut down stores and cut jobs that number rises to $0.10...and after backing out my mortgage and car payments I did great last quarter, too.  During the quarter, its same store sales fell 8%. 

The company expects this number to improve to down 2% to 7% in 2009.  Why?  Using these numbers, it is forecasting earnings of $0.59 to $0.78 for fiscal 2009.  Good luck.  Starsucks is broken.  Stay away from it.

Deej

5 Comments – Post Your Own

#1) On November 11, 2008 at 10:20 AM, saunafool (98.75) wrote:

Yeah, it looks like the U.S. will be the new source of ZIRP (zero interest rate policy). I just wonder where people are going to go for the spread when Europe, the U.K., and Japan are also have ZIRP in place...

I disagree on Starbucks. They are one of the great things about America. A great company, a great brand, taking a successful concept and repeating it 1000 times. Sure, consumers are going to cut back, and SBUX is in for a few bad years. However, I think SBUX has built a network of outlets which are as much a part of the American landscape as McDonalds.

Things are so unpredictable right now that I won't put a value on SBUX. It might go much lower. However, when this recession ends, SBUX will still be standing, they will still have 5000 locations or so, they will have trimmed a lot of fat, and their earnings will rebound.

There are a lot of things much more wrong than Starbuck--Krispy Kreme would be an example.

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#2) On November 11, 2008 at 1:00 PM, edbbear (< 20) wrote:

Starbucks is going to struggle because it is discretionary.  That said, it's prices aren't as high as you say.  A large cup of coffee is around $2.25, which is about the same as Dunkin Donuts.  McDonald's is cheaper by a good 50 cents but it's a weaker brew.  I've started making coffee at home as many others are doing, but I make Starbucks or Seatle's Best because I like those the best.  I'm sure Starbucks is really getting hurt on their lattes, cappucinos and frappacinos, since spending $5 on a drink is ridiculous.  Regardless, I agree completely that it doesn't make sense to buy SBUX (or any retailer) until we know how bad the recession is going to get.  It could get absolutely brutal.

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#3) On November 11, 2008 at 10:16 PM, Option1307 (30.13) wrote:

Sauna,

Lets not get ahead of our self, Stabucks is not McDonalds and never will be...

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#4) On November 12, 2008 at 5:15 AM, outoffocus (23.48) wrote:

I thought GM was a symbol of whats wrong with America. But actually GM is more of a picture of what the US Treasury is going to look like in a few years.  Do you think they've procured those taxpayer funded panhandling cups yet?

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#5) On November 27, 2008 at 3:04 PM, garyc27 (< 20) wrote:

Hey Deej,

When you get that application, please email me a copy at sales@golfcityonline.com, I could use a cheap loan right now.

Thank you in advance for your assistance.

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