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Analyst's Best Stock Trades: Coffee Retailers

"People still need their coffee fix, despite the tough economy," said David Tarantino, analyst at Robert W. Baird & Co.

Coffee stocks keep rising, despite the fact that consumer spending is under quite a bit of pressure.

“A lot of these companies improved their margins by cost cutting and through lower commodity costs, and I think that a better earnings outlook has led the stocks so far this year,” said Tarantino.

“I think the runup in the group has really been largely a function of the better earnings outlook."

Tarantino expects coffee retailers to continue growing — and feels innovation will be the key to success.

“I think for Starbucks in particular, food has been an opportunity category and I think it will help on the margin," he said. “These companies need to innovate on the core beverage offering in order to be successful longer term.”

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Tarantino Likes:

Starbucks

Peet's Coffee and Tea

Tarantino remains neutral:

Caribou Coffee

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Disclosures:

SBUX, PEET and CBOU are investment banking clients of Robert W. Baird & Co.

Robert W. Baird & Co. maintains a trading market in the securities of SBUX, PEET, and CBOU.

Disclaimer