The Best Coffee Stock in the World
MMN Recommend
Today we’re featuring Global Gambits: Stocks, ETFs, Strategy by Carl Delfeld.
He’s helped manage billions, advised hedge funds, and wrote for Forbes. His strategy is simple: build a solid ETF core, then go after asymmetric bets—3X, 5X, 10X returns.
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I’ll let Global Gambits: Stocks, ETFs, Strategy take it from here…
U.S. consumer multinationals are struggling in China right now bogged down and challenged by both Chinese rivals and geopolitical tensions.
In the first quarter, Apple iPhone sales were down 8% in China while Huawei sales were up 70%. Wal-Mart (WM) has closed more than 100 stores in China over the past five years.
China used to count on China providing 20% of total revenue but it’s closer to 10% now while Chinese sneaker maker Anta sales surge.
In the world of coffee, the story is the same.
China now has more coffee shops than the United States, according to the World Coffee Portal, a market research firm. The market grew 25 percent from 2018 to 2023, according to Bain & Company estimates. United States, where its 17,000 stores generated $26.7 billion in revenue last year, but also find a solution in China, where its 7,600 stores bring in around $3 billion in annual sales.
Coffee king Starbucks (SBUX) overall sales were down 8% in the first quarter.
Starbucks U.S. sales are crippled by slowing consumer spending and people working remotely as well as competition from local boutique coffee roasters.
All this led to Starbucks posted $8.6 billion in sales, a 2% decline over the prior year. Comparable sales declined 4% worldwide. One area where Starbucks may be also losing out as prices are high relative to competitors.
For example, a smaller disruptive chain which is the last Global Gambits coffee recommendation is Dutch Bros (BROS).
An operator and franchisor of drive-thru coffee stores, the company has about 900 locations across 17 states in the U.S. Dutch Bros saw seen its share price soar with potential room for further growth.
Revenue soared by 92% from 2021 to 2023, and after some heavy losses, Dutch Bros was able to manage a small net income of $1.7 million for 2023. Dutch Bros looks well-positioned to continue growing as the company plans to open between 150 to 165 new stores this year. From a price to sales perspective, Dutch Bros stock price is right in line with Starbucks stock, so it is basically a call on higher potential growth versus a global premium brand with much stronger financial resources.
With strong brand recognition from its member rewards program, along with two successful product launches during the most recent quarter, Dutch Bros looks like a stock you can keep for the long term. However, some investors are concerned about the company being able to maintain its growth momentum leading to its stock pulling back rather sharply in the last month.
Starbucks, which has made a major bet on China’s emerging coffee market, also faces formidable homegrown competitors and this is impacting its market share.
This where we now go for a new coffee stock idea for Global Gambits subscribers.
Nothing in this email is intended to serve as financial advice. Do your own research.
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