Jamba Juice (JMBA)
From Cabot Wealth Advisory 12/26/12 Sign up for free Cabot Wealth Advisory e-newsletter
Last week I began a series titled "10 Stocks to Hold Forever," in part because the 10 stocks my editors chose back in 2007 have gained an average of 52.4%, while the S&P 500 has LOST 2% over the same period.
s You can read background info on the theory and strategy here.
Today I'm bringing you the second stock (alphabetically) in the list of "Stocks to Hold Forever" my editors chose last month.
It's Jamba Juice (JMBA), and it was selected by Tom Garrity, editor of Cabot Small-Cap Confidential.
For the record, Tom's average gain on stocks sold since he became editor of Cabot Small-Cap Confidential just over five years ago is 30.5%. That's very impressive, and I see no reason JMBA can't do the same.
Jamba Juice was founded in California in 1990, as a maker of smoothies. From one shop, the company grew to hundreds, and in 2006, the original management team sold out to an investment group for $265 million.
Today, six years later, the stock's market capitalization is $170 million (compared to revenues of $229 million), so it's obvious that something went wrong.
Most notable is the fact that Jamba hasn't had a profitable year since 2007!
Yet Jamba remains the #1 nationally recognized name in the smoothie business, with roughly 770 retail outlets in more than 20 states, the Bahamas, Canada, Korea and the Philippines.
Tackling the problem, management has instituted a number of major changes (some of which will take time), but Tom is confident that patience will pay, and that if you buy now, while the stock is cheap, you'll be amply rewarded.
Here's some of what Tom wrote:
"On December 1, 2008, Jamba took its first steps toward righting its sinking ship by appointing CEO James White. White proceeded to outline and implement a pair of business models/strategies titled "Blend 1.0" and "Blend 2.0."
"Blend 1.0, the first stage in Jamba's turnaround plan, was implemented between 2009 and 2011. This first stage was designed to achieve the following goals: accelerate the development of franchise stores and non-traditional stores, expand the menu across all parts of the day, and license and build a consumer packaged goods (CPG) line. Much of how Jamba operates today sprang from Blend 1.0--from Jamba's expanded menu offerings to the company's increased community involvement and focus on customer health.
"This portion of the company's turnaround plan was also responsible for Jamba expanding into nontraditional markets, including K-12 schools and college campuses. In fact, with colleges and K-12s turning away unhealthy beverages, Jamba is being viewed as a solution to fill those service gaps. The company's storefront flexibility—i.e., kiosks and smaller stores--has allowed Jamba to develop a robust franchising program with higher yields and lower capital expenditures. Along those lines, Jamba has also accelerated development of franchises, entering into agreements with Max's Group, SPC and Canadian Juice Corp., which sports more than 1,200 stores in 25 countries. Internationally, Jamba's retail partners have signed on to open 320 stores during the next 10 years.
"Furthermore, Jamba has also built brand recognition via product licensing agreements with Nestle and Inventure Foods. Around 2008, Jamba and Nestle agreed to develop energy drinks, with the partnership leading to three commercial offerings: Strawberry Banana, Crisp Apple and Pomegranate Blueberry. Meanwhile, Inventure licenses Jamba's ready-to-blend smoothie kits, which reproduce versions of Jamba favorites like Razzmatazz, Mango-a-Go-Go and Strawberries Wild.
"Jamba expects that revenue from its expansion into retail consumer markets will reach $1 billion from royalties, licensing and joint venture consumer products by 2016.
(Note: If this company is doing $1 billion in licensing, etc. by 2016, its stock will go through roof! But Tom doesn't write like that.) Going on, he wrote:
"The successor to Blend 1.0, Blend 2.0 is designed to expand upon Jamba's product line as well as its points of distribution, with the stated goal of reaching 50,000 retail locations. Furthermore, the company intends to expand its current offering to 35 product lines. Jamba is also looking to expand and improve its menu offerings, including Fit 'n Fruitful Smoothies and Pre-Boost Smoothies.
"As a final component to Blend 2.0, Jamba is ramping up its "Jamba Go" self-service freestanding offerings. The Jamba Go concept is designed to provide K-12 schools, convenience stores, colleges and entertainment centers with Jamba smoothie dispensing units. At present, Jamba feels it can place 400-500 units in schools alone, with the potential to expand to more than 1,000 units eventually. As an investment choice in a healthier America, Jamba is a keeper. The company is already decades ahead of any existing quick-serve restaurant when it comes to offering a healthy menu.
"Unlike most other fast food restaurants dotting the countryside, Jamba's menu items can claim they're both tasty and healthy. The company uses only high quality ingredients, avoiding artificial preservatives, trans fats, high fructose corn syrup and artificial preservatives. In order to ensure the highest quality of healthy offerings, Jamba has taken its food selection one step further by employing food scientists, quality assurance specialists and other food industry gurus. And while nearly anyone can open a smoothie shop, Jamba differentiates itself by infusing its brand and company culture with an overriding sense of health consciousness.
"From Jamba's store ambiance to its knowledgeable general manager, shift managers and team members, the company exudes a deep expertise in nutritious health. In fact, all Jamba associates are encouraged to develop and practice healthier eating and lifestyle habits consistent with the company's image. Jamba's mantra is that the company--from its buildings and its policies down to its employees--should embody its product platform of healthier drinks (smoothies) and food items. By doing so, Jamba has ultimately instilled a sense of brand loyalty in its customers by engaging them with a message of healthier living, or, "living fruitfully."
When Tom's initial recommendation was published back in June, JMBA was trading at 1.84. Last week it topped 2.25, for a six-month gain of 22%, which is very good. But Tom thinks there's far more upside for the stock.
And he's not alone. Turns out that analysts are expecting Jamba to turn a profit in 2013, with the average estimate being $0.08 per share!
Most recently, in November, Tom wrote that Jamba "announced its intent to expand throughout its home state of California with a growth plan that includes the opening of up to 120 new Jamba Juice stores in select territories across northern, central and southern California over the next six-to-seven years."
If you like the idea, you could just plunge in and buy JMBA here. But what I really suggest is checking out Tom's Cabot Small-Cap Confidential, so you can see all his recommendations—including his recommendation on when to take profits in JMBA. Click here for more information.
|Jamba Juice (JMBA)
6475 Christie Avenue, Suite 150
Emeryville, California 94608
|Index Membership: N/A
Full Time Employees: 4,900