Timing It Right in this Market (Part 1)

 | Mar 22, 2014 | 6:00 AM EDT
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Sometimes timeframe's everything in this business. That's how I felt after visiting with Nordstrom's (JWN), Seattle Genetics (SGEN), Zillow (Z) and Starbucks (SBUX) when I visited Seattle this past week.

Each is, in its own way, a parable for how to look at stocks, what to think of them and how to make judgments of them.

Let me start with the most obvious: Starbucks. Here's a company that is often defined by the analyst community as a retailer that sells coffee. When coffee prices go up, the analysts cut numbers. When coffee prices go down, they increase them. This stock had been held hostage by the spike in coffee that occurred since the last quarter's earnings report and had been heavily shorted with every uptick.

Now it is possible that, short term, that's the way to look at Starbucks. There is a swing to the numbers when the commodity rallies or rolls over. But the company's hedged its coffee exposure for 2014 and has almost half of its coffee locked in at better prices for next year.

In fact, I learned this week when I interviewed Howard Schultz, the founder, CEO and chairman of the board, that, if you should be worried about anything it should be dairy, which is a bigger problem for the numbers.

But here's the issue with Starbucks. It's not about the commodity. It's about the vision and the ability to execute on that vision.

I want you to consider for a moment the opportunities -- and the challenges --facing Starbucks.

First, there is the opportunity of digital. I am adamant that this company has, within itself, a mobile payments and affinity business that could be licensed to just about any retailer in the world. If it were to come public as a standalone company in this market, it could be worth about a fourth of the company's entire market cap in an IPO. But it is more likely that it would be snapped up by Google (GOOG) or Facebook (FB) or Microsoft (MSFT) or Apple (AAPL).

But no matter. You can't buy this company's stock for this division, as it isn't even broken out yet. All it does right now is put more people through each store more quickly, although that, in itself, is quite additive to the numbers. Given that Schultz is now captaining the effort, I have to believe we will see, ultimately, some breakout and some very big licensing deals, as every successful chain needs a mobile payments plan to keep customers happy and get them through quickly. We just can't figure out the monetization yet.

Second, there's the food and liquor initiatives we heard talk about. These are big upsells and they are being rolled out over time. As Starbucks puts La Boulange, the baked good initiative, into its stores, numbers indeed go higher, something that some research analysts contend is not true. I asked Schultz point blank about this and he just said it's not true. I am sure liquor will allow Starbucks to fill up a whole new part of the day that is currently not used, a deadweight loss for any bricks-and-mortar outfit.

Third, there's China. Right now Starbucks has 1,000 stores in China. KFC, by comparison, has almost 4,000. I think it is safe to say that Starbucks could ultimately put in that many stores, if not more. Schultz didn't disagree with me when I asked him that.

Fourth is tea. I had been puzzling over how Starbucks would be monetizing the Teavana acquisition. I know that tea is a gigantic worldwide market. But it seemed to me that Teavana had been lost in the shuffle. This week, Schultz revealed his partner for the next phase of Teavana: Oprah Winfrey. I know that Winfrey doesn't have the clout she once did because she is not a daily network presence. But her brand is awesome and it can only help the international rollout.

Fifth is consumer packaged goods. Starbucks has such a good name it can sell everything from coffee to yogurt to carbonated soda and juices with that name. We know that will be rolled out over time.

All of these five points are incredibly significant. Yet, I can tell you that after what I saw happen with so many growth stocks of late, including superb ones like Nike (NKE) yesterday, I don't know if any of them matters at all short term. It is more than likely that a percentage point decline in same-store sales in America from the fourth quarter or a 10-cent addition to the price of coffee trumps all of these initiatives.

That's exactly what makes investing so hard and, at least for me, so difficult to advise right now. I am happy to say that you should own Starbucks. But it just traded at $69 a couple of months ago and this market's become incredibly fickle. I have little doubt that this stock will be higher over time. I just wish I knew someone who, at this very red-hot moment, cared about over time. I just can't tie the stock to the company short term, even as long term I am confident that it goes higher. I can only suggest, as I would have with Nike if my charitable trust didn't own a position already and is now frozen because I talked about it on air, recommend it now be bought into the weakness.

I think that's the only real way to tell people to buy Starbucks right now, because if you do buy it and Starbucks gives you a 4.5% comp in the U.S. it will get hammered. In that sense, it is a bit like Whole Foods (WFM), a company with massive potential, but one that missed its comp projection by less than a percent and was hammered mercilessly. In other words, just wait before you buy, betting there will be some short-term misstep that will be greeted with horrendous exaggeration by the owners of a stock that has now run up a great deal and then you pounce.  

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