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Sell Block: Friendship Vs. Financials

Friday, 2 Mar 2007 | 10:47 AM ET







Cramer is a big fan of Howard Schultz and Starbucks. Nothing makes his morning like saying, “Triple venti cappuccino with skim, wet.” And it’s hard not to admire what Schultz has done with the company. Starbucks is a lifestyle now. It’s a third destination aside of home and work. The company has even turned environmentalism into a brand that drives sales.

But when Schultz made an appearance on Mad Money a few weeks ago, Cramer had to decide between friendship with a man he admires and cold hard financials. Starbucks’ last quarter contained some softness that just can’t be tolerated in any company with a 40 multiple. The growth rate is clearly decelerating, maybe going under 20%, and the multiple is twice that. According to Cramer’s strict rules of thumb, Starbucks is too rich to recommend. And in this market, the stock is simply not defensive enough to own.

So Cramer chose money over friends. He decided that the Home Gamers who watch Mad Money were more important, and he took Schultz to task for his company’s performance. He wouldn’t recommend the stock. Now Starbucks is at $30. It was at $35 when Cramer gave it the thumbs down. He won’t touch it until it hits $27 and change. Maybe then it will be cheap enough to buy.

Bottom Line: Cramer doesn’t make friends for a reason. He doesn’t play softball with executives on Mad Money. He doesn’t care about feelings. He is cruel, he is a mercenary – but he does it all for you.

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