INVESTING: Caffeine-crazed investors may want to lay off Starbucks

You people must drink coffee. And a lot of it. That’s the only reason I can find that Starbucks would open another store within a few hundred yards of two existing locations. And I am not talking about Manhattan, where 12 million people walk around on any given business day. This is happening in downtown Indianapolis, where midweek foot traffic might reach a few hundred thousand.

Here is what I wrote about Starbucks in mid-February: “The near-term risk in Starbucks is at least $5 a share, and the longer-term picture may be one of underperformance. Currently, there are easier ways to make a buck.” The stock was selling for $32.66 at the time, and now it’s around $26. The reasons that brought me to pan the stock back then are still largely present today. Standing directly in front of the Chase Tower, I can reach four Starbucks within two minutes. Four!

The fact is, Starbucks has spent the last 40 years building one of the most well-known companies in the world. My wife is a selfproclaimed Starbucks junkie, ordering at least a few mocha yocha ya yas a week (venti, of course!). But she recently bought some contraption to make them at home, and I think there have been fewer trips since then. At $4 per Starbucks visit, the contraption will pay for itself in no time.

If there is one thing that gives investors fits about Wall Street, it is their inability to differentiate between companies and stocks. Great companies will post great Wall Street runs, but not all the time.

There are a lot of reasons why the stock of a great company will stop working for a while. Wal-Mart’s stock has spent the last eight years doing absolutely nothing, but the company still seems on top of its game. I went there last weekend, and once again I was amazed at how much cheaper it is than its competitors. But I won’t be touching the stock anytime soon.

I think Starbucks is like that now. The company can keep cranking along, but the stock price may underperform.

There is a slight wrinkle in my negative stance on Starbucks. Barron’s, the leading financial weekly newspaper, recently wrote some positive comments. Typically, Barron’s gets excited about deep-value stocks, which at current valuations Starbucks clearly is not. But the newspaper likes the international growth prospects and feels that will carry the stock through any near-term domestic saturation issues.

So, putting together my circumstantial observations and the analysis from Barron’s, I am neutral on the stock. I still think there are better ways to make a buck, though.

For example, a lot of energy stocks are pulling back due to tough year-over-year comparisons. But keep an eye on them. If stocks like Baker Hughes and Halliburton fall enough, they could be worth a shot. The price of oil has been flying lately (as I’ve been mentioning all year), which continues to create robust demand for oil service companies. I still believe the price of oil will top $100 a barrel within three years. Energy stocks should continue to participate, excluding short-term corrections from time to time.