By Timothy Lutts, Cabot Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 5/23/11 Sign up for free Cabot Wealth Advisory e-newsletter
Even though the popular market indexes have weakened in recent weeks, the broad market's health still looks good. And there are still a lot of great growth stocks to choose from.
One that might fit very well in your portfolio is Green Mountain Coffee Roasters (GMCR).
Green Mountain is the dominant manufacturer of single-cup coffee brewers, a business with a classic recurring income element. Once you buy (or receive as a gift) the company's Keurig brewer, you must buy the K-cups of coffee, over and over again. And no matter whom you buy them from, Green Mountain gets a piece of the cash flow.
Green Mountain had spent years doing deals with brewers like Timothy's, Tully's, Caribou, Celestial Seasonings and Newman's Own, but two months ago it hit a home run by locking in a deal with Starbucks. And then early in May it released an excellent quarterly report; revenues surged 101% to $648 million, while earnings exploded 129% to $0.48 per share. Also, the after-tax profit margin was a record 11.0%, superb for a "food" provider.
So the fundamentals are great.
But what makes me call the stock "The Next Coca-Cola" is the behavior of the stock.
Since the announcement of the Starbucks deal, the stock has been trading very tightly. That tells me institutional investors are taking control, as they slowly move into the stock. And that tells me that in the future, this stock will trade more and more like Coca-Cola (KO) did in its best growth decades; it will become a stock that institutions lock up for the long term. (In fact, Wellington and Fidelity together owned 33 million GMCR shares at the end of the first quarter, up from 17 million the quarter before.)
Also, it appears to me that as the forces attempting to reduce the epidemic of obesity in our culture increasingly demonize soft drinks, coffee drinks are likely to become even more popular than they are today.
Now, that doesn't mean that I recommend you hold GMCR long-term. But it does mean that the current uptrend is one you can take advantage of. Today, the stock was trading at 78, at an all-time high. I'd wait for a pullback to get on board, ideally to the 50-day moving average, which is now at 68.
Alternatively, for regular advice on dealing with the stock's movements, you could take a no-risk trial subscription to Cabot Market Letter, whose subscribers bought Green Mountain in late March at 64 and are now looking at a two-month profit of 22%.
If all goes well, it could be the start of a very rewarding relationship, in which Green Mountain comes to dominate a global coffee-brewing business, initiates a dividend, and becomes respected far and wide as a safe long-term holding.
You could buy GMCR here and hope for the best or you could get Cabot Market Letter Editor Mike Cintolo's latest recommendation on this and other leading stocks by clicking here.
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report
From Cabot Wealth Advisory, 7/8/10. Sign up for free Cabot Wealth Advisory e-newsletter
Green Mountain Coffee (GMCR) was a big winner in 2009 and early 2010, breaking out of its initial base at a split-adjusted 9.6 in March 2009 and advancing as high as 33.2 (again, split-adjusted) this spring. But the stock fell apart in early April, as the company's story was simply too obvious—too many traders and investors were following the stock after its huge run. And what's obvious in the market rarely works.
GMCR then collapsed even further after its quarterly report "only" met expectations (even though sales were up 68% and earnings were up 82%). Part of that disappointment was because the company had production issues; some of its Keurig brewers were returned due to malfunctions. I'll call that a management problem.
Looking ahead, however, the firm's growth prospects still appear to be excellent—analysts see earnings rising 50% in the June quarter, 91% in the September quarter, and another 45% for fiscal year 2011 (ending next September). Longer-term, Keurig continues to gain market share among all coffee brewers, and that's leading to a great recurring revenue stream, as K-Cup sales are expected to be up 75% this year.
Back to the stock, GMCR's total correction amounted to 35% ... at least so far. That's not unreasonable given the market environment and the stock's prior advance. But what really caught my eye was that, after bouncing from 22 to 28 during the market's brief June rally, GMCR held up in the 25 to 26 area (well above its prior low of 22), despite the market's plunge to new lows. Call it the first inkling of relative strength.
I would also note that, during this correction, the stock took out both its 200-day moving average, and the low of its prior base. Such actions are often enough to scare and wear out most of the weak hands ... "re-setting" the stock's advance and giving it a new lease on life.
Now, to be fair, the stock is still nearly 20% off its high and is 13 weeks into a base-building process that, in my opinion, is going to take longer to complete, even if all goes well. There's an upcoming earnings report toward the end of this month, too, which adds risk. So I'm not a big fan of buying GMCR here, even if the market suddenly turns healthy.
However, this razor/razor blade story remains one that I'm attracted to, and in my experience, if the company's sales and earnings continue to grow rapidly during the next quarter or two, the stock should eventually emerge from this consolidation and begin a new advance. Of course, if management is unable to correct its production problems, all bets are off! Either way, GMCR is worth keeping on your Watch List, and it should be interesting to see how it reacts to the earnings report later this month.
Editor's Note: More top stock ideas from expert Mike Cintolo can be found in his newsletter, Cabot Top Ten Weekly. In it, he uncovers the strongest stocks in the market, each and every week. So you always have a fresh list of the best stocks to choose from. Try it today! Cabot Top Ten Report
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Cabot Top Ten Weekly
Michael Cintolo
Vice President of Investments and Editor of
Cabot Market Letter and
Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory, 8/6/09 Sign up for free Cabot Wealth Advisory e-newsletter
For investors who want fast growth, I recommend Green Mountain Coffee Roasters (GMCR),which we've mentioned here before.
Michael Cintolo of Cabot Market Letter is a big fan of the stock; he added it to his Model Portfolio on May 5 at 50, and is now sitting on a 36% profit. In last week's issue, he wrote this:
"Green Mountain Coffee Roasters has released a new iced tea product for use in its Keurig brewers, which could add a bunch more revenue during the summer. Fundamentally, we still enthuse about the company's prospects, and the stock itself continues to act very well, busting loose from a six-week consolidation last week on heavy volume. But a big key will be GMCR's reaction to earnings, which are due out Wednesday evening. We'll be watching closely, but right now, the evidence is bullish. Sit tight if you own some, and if you don't, wait for the earnings reaction."
Well, the earnings came out and they were great; revenues grew 61% to $191 million, while earnings doubled, to $0.36 per share. But as Mike said, more important was the stock's reaction to the report. It was volatile for the day, trading between 62 and 72 on four times average volume. But it finished up, and it's traded tightly since, continuing to build a base that should eventually lead to a breakout above 70 ... assuming the firm's four million share secondary offering goes well in the day or days ahead.
Longer-term, the key attraction to Green Mountain is its razor blade business model. The recurring income from the disposable K-cups, which make you a cup of coffee for less than 50 cents, represents a very predictable stream of income for the company. If you don't own it, it's not too late to buy.
Editor's Note: Do you want more of Michael Cintolo's expert advice on buying stocks and timing the market? Then you should try Cabot Market Letter, THE place to find out Mike's latest thoughts on the market's action, what stocks he's currently buying (and which to avoid) and whether the time is right to invest. Right now, our market timing indicators are all bullish, telling us it's time to BUY! Let Mike be your guide to this new bull market and start by filling your portfolio with the market leading stocks he's buying right now. Get started today!
Timothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report
From Cabot Wealth Advisory, 7/9/09 Sign up for free Cabot Wealth Advisory e-newsletter
One stock I'm following closely is the #1 glamour stock in the entire market—Green Mountain Coffee Roasters (GMCR), which we've written about a few times in recent months. For most investors, GMCR only came on their radar in late April, when the stock gapped up 37% on its first quarter earnings report. Yet the stock is actually up since that huge move, and it's still holding up well despite the market's weakness, consolidating the past five weeks.
And why not? The company has one of the most attractive razor/razor-blade business models we've ever seen, addressing a mass market as big as there is. (Coffee, tea and cocoa drinkers.) The company already owns about 6% or more of the total coffee brewer market thanks to its Keurig single-cup brewers (it varies a bit by the quarter), and I see no reason it can't get to 10%, 15%, 20% or more in the years ahead. And each brewer sold leads to an immense amount of recurring income from the K-Cups used.
One of the biggest positives in my mind is that the top two brands of at-home coffee makers (Mr. Coffee and Cuisinart) have thrown in the towel and decided to team up with Keurig to launch co-branded, K-Cup based single-cup brewers in the months. That tells me that Green Mountain's 80% share of the single-cup market is likely to last for years.
Of course, earnings are coming up around the end of the month, and if for some reason they disappoint the lofty expectations, I know GMCR can get hit. But I think, if you didn't buy any after the earnings gap because you thought it was overheated, that you can buy a little (i.e., maybe one-third or one-half of what you'd normally buy, dollar-wise) around here
and see how the stock does in the weeks to come. It's still as big a story as there is.
Editor's Note: More information about Green Mountain Coffee Roasters (GMCR) from growth stock and market timing expert Michael Cintolo can be found in his weekly newsletter Cabot Top Ten Report. The Report highlights the hottest stocks in the market—those with the best momentum—and solid numbers and fundamentals to back it up. Each week, Mike handpicks 10 stocks and brings subscribers a detailed fundamental and technical analysis, along with precise buy points, so you get in at just the right time. Plus, Mike follows the top stocks as long as the Report holds them, helping you profit every step of the way. Don't delay, get started today!
By Brendan Coffey, Analyst and Editor of Cabot Green Investor
From Cabot Wealth Advisory, 6/18/09 Sign up for free Cabot Wealth Advisory e-newsletter
If you follow the stock market, you already know the stock of Whole Foods Market (WFMI) has been a big winner due to this trend for much of this decade. In fact, in recent years, sales of organic products overall were rising 25% a month (!) until the economic turmoil of last autumn. Naturally, because organics are generally pricier, that rate of growth dropped. Yet while pundits expected the recession to be the death knell of the widespread move to organics, it hasn't been.
The organic and natural foods market segment is still seeing growth of 1% to 5% a month, compared to 0.4% annual growth for groceries at large. What appears to have happened is that consumers haven't cut back heavily on organic groceries, although they have shifted more to bulk organics). Instead, they have cut back more on restaurant dining.
One of the big winners of the move toward organic products I've discussed here before—Green Mountain Coffee Roasters (GMCR). The Vermont company has a large mix of organic and fair trade coffee in its offerings. The beans are sold through outlets like Costco, while McDonald's serves its coffee in the restaurant's New England and Hudson Valley outlets.
Green Mountain also produces the Keurig coffee brewer and its popular single-serve K-cups. The Keurig makers have just begun distribution through Walmaart, while high-end coffee-maker company Cuisinart has recently inked a deal to market its own version of Keurig brewers.
Cabot Green Investor readers were told to buy Green Mountain stock on April 15 at 34. Two weeks later it leapt to 49 on huge volume as earnings reflected the fundamentals we pointed out to readers. It's still looking good now at 58, a 63% gain for subscribers thus far.
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Brendan Coffey
Analyst and Editor of Cabot Green Investor
Brendan Coffey is a member of the Cabot investment team and editor of
Cabot Green Investor. A veteran financial journalist, Brendan has spent more than a decade writing about investing for publications including Barron's, Forbes, The Wall Street Journal and a number of private-client brokerage newsletters.
By Brendan Coffey, Analyst and Editor of Cabot Green Investor
From Cabot Wealth Advisory, 5/14/09 Sign up for free Cabot Wealth Advisory e-newsletter
As editor of Cabot Green Investor, I love uncovering companies with a firm hold in a niche area of Green. I also love getting subscribers into growth stocks that benefit greatly from a bullish market, like the one we find ourselves in now. Last July, I identified Green Mountain Coffee Roasters (GMCR) as the next potentially great stock.
Coffee is a $70 billion retail market in the U.S., with 54% of Americans drinking an average of six cups a day. Overall, the market is a slow grower, rising just 2% a year. But the organic and fair trade segment of coffee has seen sales surge 32% a year for the past five years as consumers become aware of poorly paid farmers and the environmental problems with clear-cut coffee farms. Even with that growth, fair trade and organic is still just 3% of all coffee imports (only a small portion of coffee consumed in the U.S. is domestic, from Hawaii).
Vermont-based Green Mountain is the leader in fair trade and organic, with 25% of its product double certified as organic and fair trade, another 8% certified organic, and a further 14% farm-identified, meaning the company knows exactly where the beans come from, a crucial step in transitioning suppliers into fair trade and organic.
In New England and the Hudson Valley, McDonalds serves Green Mountain coffee co-branded with the Newman's Own label. Green Mountain also owns a category-killing technology—the Keurig. For those that don't know, the Keurig is a single serve coffee maker, offering coffee from basic Columbian decaf to rare exotics like Jamaican Blue Mountain. Green Mountain makes its own Keurig coffees and also licenses the rights to make K-Cups to others. Total sales hit $500 million for the year ended last September, part of an annualized 53% rise in sales since 2004.
Because of market conditions last year, I had subscribers keep Green Mountain on their Watch List, but since it never broke the price level of 40 that my technical analysis said was key, we never bought it. Just as well, since the stock slumped to 25 last fall. Still, I kept my eye on Green Mountain, and this April saw the fundamentals and the technical factors—including signs of fund accumulation and overextended short sellers—were dovetailing to form a potentially explosive combination.
I told subscribers to buy GMCR shares on April 15, and my model portfolio added it the next day at 51. On April 30, Green Mountain reported sterling sales of $193 million for its second quarter, up 60%, and announced that Walmart will start selling its Keurig makers and K-Cups at stores nationwide.
Shares surged to 71 at the open that day and have continued chugging up to a recent price of 81, for a 59% gain for subscribers so far. And shares still look good to buy right now.
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By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory, 5/1/09 Sign up for free Cabot Wealth Advisory e-newsletter
Green Mountain Coffee Roasters (GMCR), headquartered in Vermont, has grown its business for every year of the past decade by selling its coffee to distributors for offices, hotels, retailers, department stores and club stores. Today it sells more than 100 varieties of coffee, as well as hot cocoa and tea. Last year, revenues hit $500 million, making the company 5% the size of Starbucks.
Most important, the company has seen no slowdown in its business in the past year. In fact, it's seen acceleration. And the reason is Keurig. If you know it, you understand. And if you don't know it, you will.
Keurig, basically, is a single-serve coffeemaker that uses disposable pre-packed K-Cups. Developed for the commercial market, it's now fast infiltrating the home market.
Interestingly, the name Keurig is derived from the Dutch word for excellence, but the company is no more Dutch than Haagen-Dazs is Scandinavian. Keurig was born in Massachusetts and nurtured to maturity by entrepreneur Nicholas Lazaris.
Green Mountain Coffee Roasters bought Keurig in 2006 for about $104 million, and since then the combination of Green Mountain Coffee and Keurig brewing systems has been unstoppable. In the past year, particularly, the global recession has made a home-brewed cup of coffee (made for a lot less than a dollar), a lot more attractive to people than that $4 cup of Starbucks coffee!
I also think the earth-friendly Vermont image is becoming more fashionable now than the slightly passé Seattle image, based on computers and music.
Growth stories like this have been rare in recent months, so investors have been buying GMCR steadily. As a result, it's earned a recommendation in Cabot Top Ten Report four times so far this year, in January, February, March and April.
On these occasions, editor Michael Cintolo wrote, "While Starbucks continues to cut back after years of (over)expansion--another 1,000 workers are rumored to be on the chopping block—little Green Mountain Coffee remains in rapid growth mode. ... An office or consumer that buys a Keurig machine becomes a steady customer, and the resulting boost in business has made Green Mountain a hot item. Strict attention to cost control has also helped the bottom line, resulting in a recession-defying 14% gain in earnings (growth should accelerate from here) on a 56% jump in revenue in Q4. With just 99 institutional investors on board, Green Mountain has enormous room to grow. ... Green Mountain Coffee has a big, mass market story that could take it far... In the fourth quarter, the company shipped a huge 711,000 Keurig brewers, more than double the year-ago figure, while 357 million (!) K-Cup packs were shipped, up 55%. Going forward, the sky's the limit, as most everyone loves their coffee, and having a personal brewer and a choice of dozens of high-quality coffee, tea and cocoa choices makes sense. It's not a highly-liquid stock, but the story is very attractive."
Those buy recommendations were made as the stock worked its way from 40 to 51, giving anyone interested in the stock plenty of time to get on board.
And then yesterday it jumped 37% to 72, when the company thrilled analysts by reporting revenue growth of 60% and earnings growth of 117%.
During the quarter, the company sold 432 million K-Cup portion packs, up 62% over the year-ago quarter. Even better, it sold 479,000 Keurig brewers, up 148% over the year-ago quarter. And all those coffee-makers are now going to need coffee!
Putting icing on the cake, the company announced its coffee and Keurig brewers would now be sold at Walmart, making it a true mass-market product!
So, I think it's a great investment idea, and I don't even drink coffee. But I do buy a lot. In fact, we've had a Keurig coffeemaker in our Cabot office for several years, and everybody loves it.
Our stock of K-Cups currently includes Hazelnut, French Roast, Vermont Country, Rainforest Espresso, Spring Revival, Irish Cream, Colombian La Vereda, French Vanilla and something called Jet Fuel.
I figure we pay about 47 cents per cup and I expect to be buying coffee for a very long time.
Editor's Note: Every week, Cabot Top Ten Editor Michael Cintolo screens the market for the strongest stocks, and then narrows them down to those with the biggest potential. He gives each stock a buy range, tells subscribers why the stock is strong, and provides follow-ups in every issue; he even highlights one stock each week as his Editor's Choice.
In Mike's words, "Cabot Top Ten Report is guaranteed to highlight not a few, not some, but all of the leaders of every market cycle, because we screen for where the big money is flowing." If you're tired of buying second-rate stocks and want to know what the real leaders are, you should try a no-risk trial to Cabot Top Ten Report today. Click here.