After both stocks lost much of their 2018 their, the two coffee chains have been "defying the bears" with their big runs in 2019, CNBC's Jim Cramer said Tuesday.
Shares of Dunkin' have surged 25% year to date, while Starbucks have rocketed 29%. The "Mad Money" host suggests investors add the companies to their shopping lists.
"Sometimes, you need to be disciplined. Starbucks and Dunkin' Brands are two terrific coffee chains, but if you don't own them already, I think this may not be the correct moment to start building a position," he said. "If either stock gets brought down for whatever reason ... you have my blessing to start buying."
Starbucks' stock traded sideways for a couple of years before getting hammered in 2018. In hindsight, Cramer said there were two buying opportunities, including last June when CEO Kevin Johnson preannounced bad numbers and in December when Starbucks cut long-term earnings growth forecasts by 2%.
Johnson presented a plan to close stores, beef up Starbucks' digital program and return value to shareholders through dividends and stock buybacks. But analysts lost confidence in the stock, Cramer said. The stock dropped about $10 per share to under $48 in June and fell again from the high $60s to the low $60s in December.
"Because Kevin Johnson ... is a man of his word," these were times to pull the trigger, Cramer said. "Between his digital initiatives, his execution improvements, the partnership with UberEATS, and his buyback, Starbucks has been able to deliver two excellent quarters in a row."
Fast forward to May, shares of Starbucks retreated from $80 to $75 as China fears heated up, Cramer noted. Investors worried the coffee shop would struggle in that country, which is a major source of growth, he said. The Chinese consumers, despite the trade war, kept returning to their stores.
"I think Starbucks never should've sold off so hard in the first place last year, which is one reason why the stock has been such a fabulous winner as management just keeps delivering and delivering" solid numbers in 2019," Cramer said. "Kevin Johnson deserved the benefit of the doubt — I'm glad we gave it to him."
Turning his attention to Dunkin' Brands, which owns Dunkin' Donuts, Cramer called it a "terrific regional-going to national story." The chain has expanded its footprint and product offerings to include a full breakfast menu beyond coffee and donuts, he said.
The legendary short-seller Jim Chanos, Cramer recalled, more than a year ago revealed that he had been shorting the stock for about a year doubting the company's business model. That drew more skeptics to the name, and the stock sold off after a solid beat-and-raise quarter in October, he said.
But shares of Dunkin' have surged on solid execution of its new menu, loyalty program, store openings and renovations, and its on-the-go ordering system. The initiatives paid off in its May quarter report, Cramer said.
"Long story short, management made a bunch of investments in the business last year, and now they're reaping the rewards," he said. "I think the story still has legs. Dunkin' still has a ton of room to grow on the west coast."
With Starbucks trading at 27-times next year's earnings estimates and Dunkin' selling for nearly 25-times those same numbers, Cramer said the stocks are expensive.
He recommends that investors don't chase. Buy shares into weakness.