Friday, July 8, 2011

Have You Had Your Shot of $JVA Today?

[guest post by TS]

Last weekend I was listening to the usual podcast excerpts of Bloomberg's Taking Stock radio program, and came across a July 1 interview with Scott Rothbort of Lakeview Asset Management discussing the upcoming Dunkin' Donuts IPO.  In this discussion Scott mentions Caribou Coffee ($CBOU), which is the 3rd largest publicly traded coffee chain in the US.  Caribou was trading around 10 when Rothbort met earlier with Pimm Fox, host of Taking Stock, and is now up around 13.  Rothbort says that someone is accumulating stock, as the shares are trading higher on significantly higher volume.

Buy points:
  • Michael Tattersfield, former CEO of Lululemon, is running the ship;
  • Caribou in midwest, and has expansion potential as Dunkin Donuts is primarily in the Northeast and Starbucks & Peets are in the Northwest;
  • Caribou is a take-over possibility, selling at only 0.9 times sales;
Risk is, as we approach August 4th earnings release, that momentum traders are buying and will dump the shares; Rothbort feels the action is not from momo traders but probably deeper pockets, like private equity, etc.

So, go out and buy Caribou (I'm long both equity and calls at the moment).

Is that it for coffee?  No, way.  Many people are looking all around the coffee patch.  Minyanville put together this very nice overview of the industry...and the big little name that jumps out?  While Green Mountain Coffee Roasters ($GMCR), with it's Keurig instant coffee, and Starbucks ($SBUX) with it's global presence (and Keurig connection) are the elephants in the room, the real darling (if you're interested in capital appreciation) is Coffee Holding Co. ($JVA).  Minyanville doesn't spend much time on JVA, but look at their chart in the article.  Up some 450% this year.  WTH???

This week, as I jumped on what looks like a very foolish bandwagon, JVA went from 16 to 26, and no apparent desire to back down, right through Friday's jobs report debacle.  The company started the week at about 0.8 times sales and finished at 1.17.  The caveat emptor, aside from such a stultifying run-up, is the very thin float: about 2.15M shares.  Sure, they may split a few times... but how many institutions can buy in such a shallow pond?  Also, no options are trading on JVA yet.

Where is JVA going?  Let us know here at Black Swans.


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