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A Grande Growth Story

Wednesday, 5 Sep 2007 | 11:09 AM ET

Cramer’s always looking for a bull market – and he just found one in the obituaries section of the paper.

Last week Alfred Peet died at the age of 87. He was considered the grandfather of the specialty coffee business, starting Peet’s Coffee and Tea in Berkeley way back in 1966. You probably know Peet’s Coffee if you live in New England or on the West Coast. Cramer thinks it’s a stock to be owned – and he knows that thanks to Alfred Peet’s obituary.

Obviously, if we’re talking coffee, the first comparison to be made is Starbucks . The two companies actually have some history together, Cramer said, as Alfred Peet taught the founders of Starbucks everything he knew about coffee and sold them their first year’s supply. PEET was one of the big inspirations behind the creation of SBUX in 1971 before it became the coffee juggernaut that it is today.

For Peet's Sake
Peet's Coffee & Tea Inc. could be a recession-proof play, says Mad Money host Jim Cramer.



Peet’s, although much smaller than Starbucks with only about one hundredth of the stores, is actually growing much faster. It’s a regional to national coffee play, with the company opening up 30 new stores by the end of this year which will jump its store count 19.8%, Cramer said. In comparison, Starbucks plans just a 3% jump in store openings for the next quarter. Good regional to national stories are hard to come by in this environment but Cramer thinks Peet’s is on its way. Think of it as a small rival to Starbucks, not a copycat, he said. And since it resides in an upscale market it shouldn’t get too bruised by weakness in our economy.

Last quarter PEET did well and the stock traded up to $28.75. It has since come back down to $25 and Cramer thinks that’s a good entry point. In its last report, the company lowered guidance because of high dairy costs. But now Cramer thinks the stock has priced that in and he believes dairy costs will go down, which will be good for PEET’s bottom line.

Hurricane Katrina caused coffee prices to spike enormously because the U.S. imports so much coffee from New Orleans. This being prime hurricane season, should you feel trepidation about investing in a coffee retailer like Peet’s? Cramer doesn’t think so. Peet’s has a huge inventory of coffee beans to fall back on. They don’t need to buy coffee every day – in fact, they don’t even need to buy it every month. Even if there is a hurricane, Peet’s should be set.

Bottom Line: Cramer always says there’s a bull market somewhere. This time, he found it in the obits and in PEET.

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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