Starbucks Weakness Could Trigger Rotation Trade

Thursday, 26 Jul 2012 | 6:56 PM ET

You may find long lines at Starbucks in the morning, but you won’t find any line to buy Starbucks on the Fast Money desk.

“There’s no reason to own it here,” says trader Keith McCullough, CEO of Hedgeye Risk Management. “Growth is slowing. They’re not executing on the top line. And it’s an expensive stock. ”

That was McCullough’s knee-jerk reaction after poring through Starbucks results which disappointed the Street.

“We are dealing with significant economic and global headwinds in Europe.” Howard Schultz, Starbucks CEO, tells CNBC after results on Thursday.

“I’m long,” reveals trader Joe Terranova, chief market strategist for Virtus, with a long face. “I would probably now look to sell if the stock bounces back toward $52.”

Trader Mike Murphy, founder and managing partner at Rosecliff Capital, sees results as a sign that it's time to rotate.

He thinks Starbucks' weakness is a signal to rotate into Dunkin as a bet that the US is the best house in a bad neighborhood. “Over 70% of revenue for Dunkin comes from the US. I like it long-term.”

Starbucks Blaming Macro Factors for Drop
Starbucks CEO Howard Schultz put a pretty positive spin on the company's disappointing [earnings] results, says CNBC's Herb Greenberg.

Looking at Starbucks results a little more closely, the company posted fiscal third-quarter earnings excluding items of 43 cents per share, up from 36 cents a share in the year-earlier period.

Revenue rose to $3.33 billion, from $2.93 billion a year ago.

Analysts had expected the company to report earnings excluding items of 45 cents a share on $3.33 billion in revenue, according to a consensus estimate from Thomson Reuters.

Posted by CNBC's Lee Brodie

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