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Seven Reasons Starbucks Is Hot


People are finally willing to buy Frappuccinos again.

After a year or so of depriving themselves of all kinds of little luxuries they were once accustomed to, my coworkers are finally reaching into their pockets once again. And what are they pulling out, you ask? Coin... to spend on multiple trips throughout the day at Starbucks (SBUX).

True enough, the number of coffee snobs and fancy-drink lovers I'm coming across is still low compared to pre-recession levels. But Frappuccinos and muffins are whipping by my desk in volumes not seen in quite a while.

Although my observations are about as unscientific as can possibly be, they're the reasons why I'm starting to pay more attention to the popular coffee chain. That, and the fact that the company is due out with its first-quarter numbers after the bell on the January 20.

Here's a quick rundown of some of my thoughts:

1. I'm about as tight-fisted as they come, yet even I find myself more willing to part with coin these days. I'm not alone, and if my observations are correct, it could play right into Starbucks' hands. Actually, I think the company will end up beating the first-quarter estimate, which is $0.27.

2. For those that don't want to belly up to a Venti cup, there's Via, which is an instant coffee that's generating some hubbub on the Street and in the press. This option could certainly bring some new folks through its doors. (See Video: Will Starbucks Via Be an Instant Success?)

Just think about the sheer number of coffee drinkers that could jump into its lengthy lines in the months to come.

Estimates have been moving on up, and that puts the company squarely on my radar screen and on those of others as well, I suspect. The earnings beats it's recently kicked out are like whipped cream and cinnamon on the Tall Java Frap.

Is McDonald's (MCD) a potential threat? You bet. But I firmly believe this rodeo is big enough for two cowboys. And with Starbucks' management trying to improve the experience its customers have, I think it will still be the primary force to be reckoned with on the coffee front.

6. In November '09, an insider reportedly bellied up and bought 2,000 shares at $21 and change. It's great to hear an executive apparently hopped in at a level that's somewhat close to the current price.

I believe the shares could have 10% to 20% upside in the coming year.

Hey, have a great day!
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No positions in stocks mentioned.

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