Wake Up and Smell the Profits: Green Mountain Coffee Roasters Inc. (GMCR), Farmer Brothers Co. (FARM)

WAKE UP AND SMELL THE PROFITS

Peter Lynch, who ran the Fidelity Magellan Fund when it became the best performing mutual fund in history, was an only investing in things you understand and he publicly stated that he believed the average investor should be able to outperform the average mutual fund because the average investor was not moving enough money in and out of a given stock to actually move the share price; whereas, he was moving millions of dollars at a time and was therefore limited to larger business and stocks that normally traded very large volumes.  He was also fond of looking for investment ideas while going through the motions of his daily life by observing what seemed to be popular.  He understood that being a popular stock on Wall Street was not a requirement for having a popular and successful product.

Possibly the greastest advantage we have as individual investors is being able to buy businesses that offer excellent products when they are out of fashion on Wall Street.  You can never overestimate the advantage you have in investing when the only person you answer to is the one in the mirror.  That gives you the ability to practice what one of the most successful investors of all time, Warren Buffet, has said: “Be fearful when others are greedy and greedy when others are fearful.”  Fear is the only thing that causes stock prices to be undervalued and greed is the only emotion that drives them up to ridiculous prices.  Quite often, when I smell fear, I think profit!  Today, I smell fear, but it smells a lot like coffee!  Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) coffee to be exact.

IT’S TIME TO SMELL THE OTHER DRINKS TOO

I know that not everyone likes coffee; some like tea, others prefer hot chocolate and it really doesn’t matter to me what drink they prefer.  All that matters to me is that most people have a hot morning beverage they enjoy, have no intention of changing their existing favorite, only need a cup or two and I can find a way to profit from satisfying that want and desire.  Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) doesn’t care what their individual preferences are either, they make a single serving container to produce a beverage for just about any taste.  They also make and sell the Keurig brewer for producing the beverage quickly by the cup.  If you look, you will be surprised how many places you see these systems in place and, believe me, the beverages are really good!  It is the kind of business Peter Lynch just might love.

WHEN WALL STREET LOVES ME NOT

When Wall Street loves a stock, it is normally priced beyond any reasonable valuation even if it were to perform perfectly.  This was the case with Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) in 2011 when it was a “MUST OWN” for every portfolio and reached an all-time high price on September 19, 2011 of $111.62/share with projected earnings of $1.44/share for the fiscal year ending September 30, 2011, producing a P/E of 77.51!  It was just hard for me to believe there was a reasonable, fundamental metric by which to value this business at over 77 times current earnings; but, it was a “must own” stock for many people at that time.  Isn’t love grand?