Does Starbucks' Rout Stop Here?

The coffee vendor's same-store sales rose 8% in July -- but some onlookers are still skeptical. Also, the TaskMaster gets taken to task on gun control.
Publish date:

SAN FRANCISCO -- More strong economic data sparked more selling in stocks and bonds. However, some traders were pleased the selling wasn't worse. (For more, see today's

Market Roundup.)

Battle Brewing

Since falling 30% July 1 after the company warned of a profit shortfall,


(SBUX) - Get Report

shares have struggled to regain their allure. But things may be perking up (sorry).

Yesterday, the coffee purveyor said same-store sales rose 8% in July and total sales jumped 29%.


Deutsche Banc Alex. Brown

analysts John Glass and David Hone reiterated a buy rating, writing: "July's comps augur well for continued solid momentum. We continue to be strong proponents of Starbucks' long-term growth opportunity."

Hambrecht & Quist


Ragen MacKenzie

also reiterated buy recommendations. Last Friday,

J.P. Morgan

upped its earnings estimates.

But John Roque, senior analyst at

Arnhold and S. Bleichroeder

, believes Starbucks' bulls might find the road ahead as bitter as this reporter finds the company's (regular) coffee.

In a research report yesterday, he recommended shorting the stock, with a price target of 19 (SBUX dipped 13/16 Friday to 23 1/4). Roque believes the "tremendous gap down" on July 1 -- "a result of negative fundamental news" -- broke stock's chart pattern.

Furthermore, there are still more "fundamental buys" on Starbucks than holds, the strategist wrote. "We're guessing it's more likely that the one profit warning will be followed by another and the stock will not likely bottom until the analyst holds outnumber the buys."

Obviously, only time will tell. But few saw the first warning coming and Deutsche Banc was one of several firms to downgrade Starbucks the day after its warning (to buy from strong buy).

Finally, a word from noted coffee analyst

Jackie Mason

: "You want coffee in a coffee shop, that's 60 cents. But at Starbucks, Cafe Latte: $3.50. Cafe Cremier: $4.50. Cafe Suisse: $9.50. For each French word, another four dollars."

Still Bullish

Another day of strong economic data and another rough day for stocks and bonds have shaken the confidence of some. But Paul Rabbitt, president of

in Hermosa Beach, Calif., today reiterated the same bullishness I reported


"I still think it's a steeply oversold market," Rabbitt said. "This is not the beginning of some runaway inflationary spiral. Economic releases so far don't verify, don't justify that position.


was up in the second quarter but first quarter was fairly low. Bonds have overcompensated."

"I have been advising clients to be accumulating in this environment," he continued. "But my clients are not daytraders. They're positioning size and need pullbacks in order to buy the names they want to buy."

For those with a longer-term horizon (and strong stomachs) Rabbitt recommends a variety of names for which his firm has done NO underwriting (being a quant shop, it ain't their game). In technology, he likes








(ORCL) - Get Report


Electronics for Imaging

(EFII) - Get Report


Additional recommendations include economically sensitive names such as




Meritor Automotive



New Holland

(NH) - Get Report

; cyclicals


(WY) - Get Report



(WLL) - Get Report

; and service firms such as

Abercrombie & Fitch

(ANF) - Get Report


American Eagle Outfitters






Labor Ready



As always, recommendations from market pros should in no way be construed as a recommendation from the TaskMaster. Do your homework. (Or no TV!)

TSC Special

Staff reporter Scott Moritz recently joined


, giving us a much-needed set of eyes and ears on the telecom beat. Today, Moritz dials into the "Specialist" competition with

AT&T Cuts the Power at APC.

And Finally

I knew gun control was a "hot-button" issue, but I was not prepared for the volume of response after

yesterday. And 99% of it was well thought out, even from the folks who disagreed. I appreciate the feedback.

Many readers suggested I stick to my knitting (financial news). Though the level of response is addictive, I agree. But first ... school uniforms! (Just kidding.)

I need to set the record straight on a couple of things. The bottom line is that this guy in Atlanta was obviously a sick individual (his being a daytrader isn't germane, I contend; it just made for good headlines and bad jokes).

Several reasonable people pointed out that we already have tons of gun control laws which aren't enforced, and criminally minded people don't follow laws to begin with. I humbly cede those points.

However, I never said guns should be banned (I would not support this action), nor do I think the government should confiscate legally owned guns. Those who thought I did are proof that a) paranoia strikes deep, and, b) emotions sometimes overwhelm intellect (yes, I'm guilty of it too at times -- something to keep in mind in regard to financial matters, as well).

Art Welch

, a reader from Marina Del Rey, Calif., who happens to be a member of the


, eloquently said via email what I wish I'd said last night: "Arguing against things like waiting periods, mandatory training, eligibility verification checks at gun shows and trigger locks just doesn't make sense. These are things that will clearly help keep guns out of the hands of people that shouldn't have them and make them safer in the hands of people that should have them."

Have a safe and pleasant weekend.


Did anybody else catch the shock (shock!) in Alan Chernoff's "everything-I-say-is-very-important" voice when the


reporter realized


(INTC) - Get Report

finished down during his on-the-close report? After rising as high as 71 3/4 around 11:15 a.m. EDT (around the time


producers decided Intel would be the way to put a bullish spin on another rough day) the chip giant closed off 0.6% to 69.

That's why, like in hoops, you keep reporting until you hear the whistle (or closing bell).

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at