The Daily Dose: Around the Horn

 | Mar 25, 2014 | 9:40 AM EDT  | Comments
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Stock quotes in this article:

ko

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sbux

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pep

All I can say is, I hope you took to heart my message Monday morning about momentum stocks: biotechs, social media, the universe that is known as the Tesla (TSLA) cult all were whacked yesterday. It's a harsh reminder to investors that, at some point, reasonable future earnings forecasts should underlie buying decisions. Buying high-multiple stocks on 5x their projected future growth rates in earnings -- as the Federal Reserve is clearly on a path to make it more expensive to borrow on leverage -- is a recipe for portfolio pain. To wade back into the momentum names you have been obsessing with for more than a year, the attack plan is pretty simple: Wait until they regain consistent movement.

On an unrelated note, I have been engaging in research and executive interviews in order to prepare a slew of information. Here are a few behind-the-scenes notes I have compiled.

Starbucks -- the Story Never Ends

Starbucks (SBUX) just won't leave the news, so I won't stop covering it from various angles. The company is rapidly evolving its menu, as it's easy to do, and it's viewed as a surefire way to instantly boost sales and profits -- and pitch new stories to investors. For years Starbucks was had no products in a large number of categories, from tea to juice to hot pastries -- so new categories are instant tailwinds.

Here's the problem with this: Starbucks must not only retrain its employees to transform them into waiters and waitresses -- meaning they have to constantly be looking around beyond the coffee station -- but it must hire additional workers to properly work the tables of people with beers, wine and evening foods. Beer bottles must be collected and removed, and tables have to be worked like a diner in order to optimize the amount of the items being sold.

If Starbucks wants to be your local bar that so happens to sell your favorite morning coffee, these little things in process must evolve as well.

GrubHub IPO Will Be Buzzy, With a Caveat

Save these notes for when GrubHub, a non-wide-moat business, goes public at an exorbitant valuation. I do believe now is a must time for this company to go debut and get as much money from exuberant markets as possible. The main reason: It's in a low-barrier-to-entry industry, and I see Square looking to get involved, as terminals are already present in these places. Also, Starbucks and others are improving the functions of their mobile payment, and I could see a day where GrubHub, well, may not be needed.

All in all, it's time for the company's sponsors to cash in.

Why Coca-Cola Needs to Be Shaken, Not Stirred

Here are seven reasons why I side with disgruntled Coca-Cola (KO) shareholder David Winters:

  1. The stock has fallen 5% in the past year, as compared with Pepsi's (PEP) 6% increase.
  2. Coke's new incentive plan is still heavily weighted to targets on earnings-per-share growth.
  3. The inclusion of operating income as a performance measure comes after a new restructuring plan, making it easier to attain.
  4. Due to currency effects, the company has lowered its operating-income threshold for payouts on performance-based share units.
  5. Coke is using non-currency numbers to calculate incentive payouts. Isn't currency a part of doing business?
  6. Unit-case volume and operating income were below plan in 2013.
  7. Where is the transformative product acquisition?

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