Starbucks stock got a nice bump on Tuesday. This, after the company announced the CEO Laxman Narasimhan would be replaced by Chipotle CEO, Brian Niccol.
Indeed, this was a welcomed surprise after more than a year of declines that happened on Narasimhan’s watch.
Although, to be fair, had you bought shares of Starbucks stock 15 years ago, you’d still be up about 892%. That’s a compound annual growth rate of 16.5%, not including dividends. That’s not bad.
Still, will the changing of the guard at Starbucks be enough to stop the bleeding?
Given the dismal tenure of Narasimhan, it might be. But the more important question is, can the new CEO navigate a market that has become quite treacherous for chain restaurants? Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
Is Starbucks stock a buy at these levels?
While I suspect Niccol will be able to right the ship, the company is still facing some serious headwinds that include…
- Consumers spending less as a result of inflation and economic uncertainty
- Higher coffee prices
- Lack of innovation
While I believe Niccol will be successful on the innovation front, he cannot control consumer spending or higher coffee prices. And the latter is unlikely to get any better. This, in large part, due to a changing climate.
According to a recent study conducted by the Zurich University of Applied Sciences, changes in climate could slash the most suitable existing coffee lands by more than 50% by 2050. This is a very big deal.
You see, coffee can’t just be grown anywhere. It requires very specific humidity and light levels. It requires very specific temperatures and rainfall.
As the climates in traditional coffee growing regions change, so does the suitability of the land for growing coffee.
We got a firsthand look at what rising temperatures in these regions can do to the coffee industry back in 2013, when a massive coffee rust crisis hit Central America, which resulted in the destruction of more than half of the planted areas in that region. It also wiped out more than 350,000 jobs.
Today, coffee rust has appeared in nearly every coffee growing region in the world. And it’s becoming harder to prevent as rising temperatures actually help propagate the fungus.
But it’s not just coffee rust that’s pressuring coffee producers.
Overall, rising temperatures, extreme drought conditions in some areas and too much rainfall in others threaten the long-term sustainability of traditional coffee growing regions.
Starbucks has actually already been in preparation for this by developing sIx new coffee tree varietals that can better withstand some of the more damaging effects of a changing climate — including coffee rust.
I would also note that in a few years, companies like Starbucks may start introducing new coffee products that are produced using fermentation technologies to make a beanless coffee. This is a real thing, and there are a number of startups working on this right now. Including Minus Coffee (formerly known as Compound Foods), which has raised nearly $6 million to perfect this coffee alternative.
One day, I do expect to see this kind of technology instigate a replacement of traditional coffee. Once the production costs fall enough to make it viable. To clarify, it wouldn’t be a complete replacement, but instead, another option for retailers.
Of course, we’re still at least three to five years from that being a reality. And I should also point out that while some traditional coffee growing regions will see a decrease in production as a result of a changing climate, others could become more suitable for growing coffee. These would be regions that would generally be at higher elevations.
Although it remains to be seen if farmers would uproot their families and businesses to new, more suitable farmland or just switch crops. It’ll really just boil down to how much retailers are willing to pay for their raw beans.
Overall, Starbucks is still a major player. Even with increased competition in the coffee space, its brand recognition remains solid. And I’m cautiously optimistic that new leadership will get the company back on track. But in terms of pulling in some serious gains, I just don’t think you’re going to get that with Starbucks stock anytime soon. And certainly for our purposes, it’s just not worth our time. Not when we have about half dozen stocks right now that are already pulling in double- and triple-digit gains.
In fact, I’m looking at a new opportunity right now that I believe could deliver gains in excess of 102% over the course of the next eight months.
It’s a unique energy play designed specifically to support the rapid growth of the AI market. A market, by the way, that turned Nvidia (NASDAQ: NVDA) into a $3 trillion juggernaut.
Of course, what I really like about this one is that Sam Altman, Bill Gates and Elon Musk have already invested $3 billion in this thing. If it’s good enough for three of the richest men in the world, it’s sure as hell good enough for us. You can read more about this new opportunity in this special Energy & Capital investment alert. To a new way of life and a new generation of wealth… Jeff Siegel
@JeffSiegel on Twitter
Check us out on YouTube!Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.
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