August 19, 2012 in Business

Motley Fool: Starbucks looks ready for growth

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As Starbucks continues to expand, its stock looks more attractive.
(Full-size photo)

It’s been a pretty busy year for Starbucks (Nasdaq: SBUX). The coffee chain has posted record profits, announced the launch of its own single-brew system, and purchased a bakery in order to expand its food offerings. Still, missing analysts’ projections and reducing its near-term expectations, the stock has fallen from a high above $60 per share a few months ago to near $44 recently. For many investors, that just makes the stock even more attractive.

In its last quarter, Starbucks posted a weak 1 percent increase in average ticket value. The addition of new bakery items should help push this figure up. Also likely to help is a new line of cold, caffeinated fruity beverages, called “Refreshers.” The expiration later this year of patents for Keurig K-Cups also bodes well for Starbucks, as its single-brew machines will start stealing market share thanks to its strong distribution network and brand.

Along with expanding into homes, Starbucks has struck a deal with Coinstar to build a network of automatic coffee-dispensing kiosks in grocery stores, retailers and elsewhere. Meanwhile, there’s speculation that Starbucks might make a bid for smaller rival Peet’s, which could help it expand into international grocery stores.

Starbucks is expanding in a meaningful and organized way. (The Motley Fool owns shares of Starbucks, and its newsletters have recommended buying it and options on it.)

Ask the Fool

Q: What’s a stock’s “float”? – J.O., Spokane

A: It’s the portion of shares outstanding that are available to be traded by the public. It’s good to pay attention to this number with smaller companies, as “thinly traded” stocks with small floats can be extra-volatile.

Consider Paradigm Origins (ticker: BZNGA), for example. If it has 20 million shares outstanding, but the firm’s founder owns 18 million of them, that leaves a float of just 2 million shares. This means that a modest demand for shares may send the stock price soaring, as supply is so limited – and vice versa.

Q: How do I deduct brokerage trading commissions from my net capital gain on my tax return? – W.E., Monticello, Minn.

A: It’s important to do this, as failing to means you’ll pay extra taxes unnecessarily. Since the costs of buying or selling a capital asset (stock, in this example) are capital costs, they need to be factored in to your cost basis and proceeds.

Imagine buying $2,000 of stock and paying a $20 commission. Your actual cost is $2,020. You sell the stock later, when it’s worth $3,000, paying another $20 to the brokerage. Your “net” sales proceeds (generally, the amount reported to you by your broker at year-end on your Form 1099B) would be $2,980 ($3,000 less $20). On your tax return, you would report a gain of $960 ($2,980 less $2,020 equals $960). By ignoring the commissions, your gain would be $1,000, and your taxes higher. These little sums can add up.

If you think you’re paying a lot in commissions, know that many reputable brokerages charge just $10 or less per trade. For help in finding a good brokerage, visit broker.fool.com.

My dumbest investment

Buying Research in Motion all the way down was bad enough, but not following my gut and selling the whole lot a while ago was actually the worst decision. – G.B., Windsor, Ontario, Canada

The Fool responds: Shares of Research in Motion, maker of the BlackBerry smartphone, traded near $70 less than two years ago. Recently, the shares have been near $7. You might think you rode the shares “all the way down,” but that kind of thinking has gotten others in trouble, when they assume that a stock can’t fall any further. Remember that a $7 stock can become a $2 one, and even a share that costs 3 cents can fall to 2 cents.

The company’s fans have high hopes for its upcoming BlackBerry operating system update, but many remain pessimistic. The company has had trouble competing against iPhones and Android phones, and while the BlackBerry has dominated the business realm, companies are increasingly offering their employees alternatives.

It can be smart to follow your gut – but do research as well. If you don’t have confidence in a company, then sell it.


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