Starbucks Corporation (SBUX): A Star Who Has Lagged the Market

K-cups

K-Cups have taken America by storm. These little cups are single serve pods that are used to brew coffee in Keurig machines. These machines have the ability to brew “coffee shop quality cups” in your own home. Keurigs are made by Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) and are expected to gain a remarkable 30% market share of the coffee brewed in U.S. homes. This shows in Green Mountain’s 2012 annual report in which net sales and earnings per share increased 46% year-over-year.

At first thought, the Keurig poses a huge threat to coffee shops. However, Starbucks’ management acted quickly and inked a deal with Green Mountain to offer Starbucks K-Cups. This ensures that if people love Starbucks but want to save money by brewing at home, they will go out and buy those K-cups. This will also help offset the losses from people who no longer purchase bagged coffee. I believe this partnership will be beneficial for both parties, but will not affect the day-to-day operations of Starbucks’ stores. I do not see people switching from coffee shops to Keurigs, but I do see people switching from bagged coffee to K-cups.

Top threat

The number one threat to Starbucks Corporation (NASDAQ:SBUX) is Dunkin’ Donuts, which is owned by Dunkin Brands Group Inc (NASDAQ:DNKN). It has over 10,000 locations worldwide and has just begun expanding operations into the western United States. This company has a strong business model, with beverages accounting for 57% of sales and food sales accounting for 43%. In comparison, Starbucks deeply relies on beverages as they account for 78% of sales, according to a 2011 study. Dunkin Brands Group Inc (NASDAQ:DNKN), like Starbucks, has partnered with Green Mountain Coffee Roasters to sell K-cups. Overall, these companies can both be considered “best of breed” and are great long-term investment opportunities.

The Foolish bottom line

In a market where we are reaching all-time highs day after day, we must look for stocks that have underperformed. Starbucks fits this criteria and would make a solid long-term investment. I am also a fan of Dunkin’ Brands and Green Mountain Coffee Roasters as alternative plays. With Starbucks’ earnings growth, dividend, possible dividend growth, and share buybacks, it makes for a one-of-a-kind opportunity in today’s market. Take a look and see if your portfolio could use this industry giant.

The article A Star Who Has Lagged the Market originally appeared on Fool.com is written by Joseph Solitro.

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