it could have been seen a mile away -- or at least a couple of days ahead of the report. Investors want to know what it means for other food and beverage stocks. In this article we are going to discuss the investment-worthiness of four stocks within the sector that have been affected by the Chipotle disappointment and see if they deserve cautious market activity or if it's just a slight overreaction. I happen to think that it just might be a bit of both. While there are some good buying opportunities in the traditional food/beverage powers in Coca-Cola ( KO) and Pepsi ( PEP), I think it would be wise to hold tight on coffee giant Starbucks ( SBUX) while reducing exposure to Whole Foods ( WFM). Let's take a look at my arguments and see if you agree.
However, as a value investor and, more importantly, one who also appreciates some margin of safety, coming to terms with a stock that is trading at 38 times earnings continues to be a challenge that is just too much to overcome. Will the company demonstrate in its upcoming report that it deserves its valuation or will its numbers remind investors that perhaps too much exuberance has been added? Analysts are expecting earnings per share to arrive at 61 cent on revenue of $2.73 billion. Although the company has beaten estimates in each of the past four quarters, including its second-quarter report where it beat estimates by 5 cents, it would not come as shock here to see a miss. Though the company has demonstrated that it can continue to grow despite severe economic concerns, I think the smart thing to do here is to sell ahead of earnings which are due out Wednesday after the bell.
The company remains an excellent growth story and certainly should be a part of a long-term portfolio. However, on the heels of Chipotle's poor performance logic says caution should be the best approach here with Starbucks. Though I would not recommend selling the stock, neither would it be prudent to add ahead of its report.