The Microcap Speculator

A reader recently asked whether now was the time to start looking at coffee companies, given the substantial decline in coffee future prices (see chart to the left). Many have argued there is a direct inverse correlation between coffee futures and coffee stocks. In fact, a book was written on this theme called “If It’s Raining In Brazil, Buy Starbucks!”

However, the correlation hasn’t stood the test of time. Perhaps it was not that strong to begin with, or perhaps is was arbitraged away. Doesn’t matter. Look at the chart of Starbucks (SBUX). Just like coffee itself, Starbucks is in the dumper. What about the smaller coffee stocks?

Green Mountain Coffee Roasters (GMCR): [style drift warning: this stock is probably better classified as a smallcap, rather than a microcap]. Green Mountain is the best-performing stock of the bunch, rising steadily on the back of strong earnings. Green Mountain owns Keurig, the maker of those little K-Cup machines that brew one custom cup at a time.

Peet’s Coffees and Teas (PEET): Peet’s stock has gone nowhere for the past ten months, after dropping to around $26. With declining earnings, I don’t see a lot to like.

Diedrich Coffee (DDRX): Diedrich Coffee has moved back and forth between $3.50 and $4.00 more times than you can say “channelingstocks.com.” The stock is small, with a $21M market cap. While it could move on a breakout, I’d rather wait than anticipate.

Caribou Coffee (CBOU): Caribou sure had a lot of Peter Lynch-type investors excited about its IPO, but has been a disappointment as a public company. The chart of CBOU mimics its larger competitor, SBUX. Watch the insider buying, if it picks up as the stock holds support, I may get interested.

Coffee Pacifica (CFPC.OB): Momentum traders piled into Coffee Pacifica over the past few weeks. The excitement appears to follow a mention in The Economist and on Stocktiger.com. If anyone knows more about the story behind this stock, drop me an email.

Coffee Holding (JVA): Tiny roaster Coffee Holdings sports a market cap of only $21.84M, and even that could drop as the company plans to buy back 5% of its stock. JVA is profitable, and insiders are beginning to nibble. I’m going to add JVA to my watch list.

DISCLOSURE: I have no position in any of the stocks mentioned. Heck, I don’t even drink coffee. Not a recommendation to buy or sell any security. For informational and educational purposes only.

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