The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

13 April 2009

Wake up and smell the coffee

An investor never really knows for how long a company or its stock will continue to trend -- whether positively or negatively sloped -- but each trend provides many signals that alert of a change of direction. A stock is even more clear than a company (even the parent company of the stock in question), because signals from a stock chart are fairly objective; only their interpretation is subjective.

Consider, for example, Green Mountain Coffee/GMCR. The company's Keurig remains the leading single cup coffee system -- and still in the early stages of development (of its opportunity). Estimates for the
brewer and K-Cup growth remain conservative despite the difficult consumer environment. The general theme among the single cup coffee companies -- Keurig, Tassimo, and Senseo (which is the maker I own, for the opportunity to obtain Douwe Egberts coffee in the US) -- is that single-cup coffee represents a value alternative to coffee shop fare. An arguable point, for sure, because no one really wants to become an at-home barrista. Keurig's strength has been a bright spot for its retail partners in the present terrible economy, so the company's biggest opportunity is not solely via increasing distribution but through a greater presence in existing retailers (such as Costco), which helps make the Keurig and the K-Cups easy to find and purchase. Too, the variety of blends (K-Cups) help drive return store visits and re-inforces the razor/razorblade model of organic growth, which in turn makes everyone happy; store, company, consumer, and shareholder.

Reuters states that, "Green Mountain Coffee Roasters is engaged in the specialty coffee industry. The Company sells over 100 whole bean and ground coffee selections, hot cocoa, teas and coffees in K-Cup portion packs, Keurig single-cup brewers and other accessories. The Company manages its operations through two business segments, Green Mountain Coffee (GMC) and Keurig, Incorporated (Keurig)..."

Growth at the company has been tremendous, even torrid, as it builds rapidly toward a solid second place position (behind Starbucks) among coffee-roasters/sellers. One crucial difference, though, between Starbucks and Green Mountain, is that Green Mountain currently is in the process of rapid growth, whereas Starbucks retrenches. The stock chart for GMCR reflects the company's success...

[click on charts to enlarge]

Likely the first item to catch your eye in the chart above is the continuing major and primary up trend from $1 in 1999 to $53 ten years later (today). The second item that might catch your notice is that the stock has risen, or at least not declined, during primary bear markets (e.g., 2000-2002, 2007-2009), which qualifies the stock, and company, as a market leader. The third item you might notice are the lengthy bases (2001-2006, 2007-2009) that interrupt, but do not impede, the stock's continuing primary up trend. The fourth item that likely escapes your notice is that trading volume increases, despite the ever-higher share price; decidedly bullish price and volume action.

Big Base Breakout
The past 18 months (see chart below) show another big base, or high level consolidation, for Green Mountain/GMCR... until the shares broke out and up last month (March); right now all trends -- short, intermediate, and long term -- are in gear to the up side.

With increasing sales, revenues, and profits, a rising stock price, and the opportunity to purchase comepetitors with appreciated stock, the sky seemingly is the limit for Green Mountain/GMCR. No tree grows to the sky, however; for example, my initial intermediate term objective of $60-65 nears.

As always, the onus remains upon the investor to watch for a change in trend for a company and its stock. My next post will discuss this topic.

Full Disclosure: Long Green Mountain CoffeeRoasters/GMCR
-- David M Gordon / The Deipnosophist

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