Cramer: Has Starbucks Run Out of Steam?

Cramer said that almost every pattern in the stock market has been seen before and chronicled endlessly by me. Take Starbucks . This stock had a massive move, up 214% from it’s low of $7.17 on Nov. 20 of 2008. And it’s up 31% from where Cramer recommended it on July 24, at $17.22.

SBUX just reported a “piping hot” quarter last week. At this point, investors may be wondering if they should buy, sell or hold? Cramer usually advises to ring the register when big gains are had, but with Starbucks investors should leave more stock on the table.

Why is SBUX not done? The company has several specific positives, especially with the return of Howard Schultz as the company’s CEO in January of 2008. But, the main reason is that Starbucks is undergoing a fundamental transformation just like McDonald’s did back in 2003.

SBUX is now beginning its own turnaround with new management and a new focus on emphasizing profits and customer satisfaction. Also, the company is transitioning from a mostly American company to a big global player with serious international growth.

When you look at the trajectory of McDonald’s and the current turnaround in Starbucks, they are very similar so far. On March 12 of 2004, a year after MCD hit its low of $12.38, the stock was up 134% to $29.01. Sound familiar? SBUX was up 186% from its low back on October 20 of last year, and as of today it’s up 214%. Cramer said if Starbucks follows in the footsteps of McDonald’s, then it will keep going higher and higher. Two years from it’s bottom MCD was up 166% to $32.96. Investors jumped off, Cramer said, which was the wrong thing to do. Five years later it was up 334% to $53.70, and today McDonald’s is at $63.81, up 415% from it’s low.

Today, worriers are saying that SBUX “has caught up with itself.” This is exactly what the naysayers told investor’s about McDonald’s in 2004 and 2005, practically word for word, Cramer said. Global and Credit Suisse even downgraded MCD, despite strong numbers, in May 2005 and June of 2005.

“So don’t be scared by the huge run in its stock,” Cramer said. SBUX has plenty of room to rally, as seen when the company reported last Monday, delivering a 5-cent earnings beat on better than expected sales. Cramer thinks the turnaround is still on track and in its infancy.

Also, Starbucks' VIA instant coffee is gaining broader retail distribution since being introduced this September and is planning to be launched outside North America. The global instant coffee market is valued at $21 billion a year, constituting 40% of global coffee sales. Since Starbucks is already a household name, it could take this market by storm.

Internationally, Starbucks is also developing a new regional support model for its business that’s generating better results in France and Germany. Again, reminiscent of MCD, Cramer thinks international will go from 20% of sales at Starbucks to a much larger portion as it expands more successfully across the globe. Plus, on the conference call Schultz said the company is focusing on China, which should be a big contributor to the company’s growth in the next few years.

Starbucks is much cheaper than it might seem, Cramer said. SBUX has a 16% long-term growth-rate, plus growth is accelerating. The company is very much immune to President Obama’s anti-shareholder agenda. The stock at $22.54 is still well below its 2006 high of just under $40.

The bottom line: if history is any judge, investors haven’t missed the move in Starbucks.

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