Why You Should Buy Starbucks’ Dip

Although there are several specialized coffee players in the market today, one cannot overlook the magnitude of success and grandeur that Starbucks has achieved over the past many years. Its fast-growing coffee house along with tea and sandwich restaurant chain now makes it a dazzling investment idea.

More than just coffee
The company’s founder and CEO, Howard Schultz, has been successful in creating Starbucks into something that we didn’t really know we needed until we had it. He has meticulously crafted a brand for the company that adds a psychological value to its offerings. Thereby, when you buy a cup of coffee at Starbucks, you buy an experience. The somewhat quiet, not-so-rushed atmosphere along with dimmed ambience and friendly staff found at Starbucks’ stores add a feel-good factor to your purchase. As a result, people are willing to pay a premium for coffee at Starbucks even if McDonald’s were running a promotion offering free coffee. The premium prices translate to superior margins for its investors.

Quality with difference
The key to its success lies not only in the quality of its products but also the ability to differentiate itself from the competition. With Starbucks, it has always been about quality. The company manages stringent quality control measures for sourcing the finest coffee beans, roasting processes as well as customer service and ancillary products. Furthermore, differentiation is key to market control and Starbucks is unquestioningly the most differentiated specialized coffee brands in the world. From the design of its coffee shops to the music played to the types of products offered, everything has a touch of uniqueness.

Innovation
Starbucks is amongst the most innovative names in the industry. ...

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...per share for the third-fiscal quarter and $2.59-$2.67 per share for current fiscal. Also, one could expect Starbucks to raise its expansion projections for the year, considering it had nearly achieved a third of its annual target in the Q1 itself.

Bottom line
Starbucks is a dominant coffee house with enormous potential ahead. With forward estimates or store targets well within reach, and backed by its quality premium products, constant innovation, international expansions and solid fundamentals, it certainly deserves a spot in your portfolio. Moreover, the stock has corrected sharply of late, down by more than 14%, and with results due next week, it forms a strong buying opportunity. In my view, the company should outperform the boarder market in both short- and long-term. Recommended trade: long Starbucks at $70.40 and cover it with put strike $67.50 for $1.05.