Analysts Cool on Coffee — Here’s One Way to Play for Safe Profits

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  • Restaurant stocks have fared relatively well the past few months on news of a Covid vaccine rollout. While that’s still an ongoing concern, the big move higher for restaurant stocks suggests a pause right now.

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  • That’s the case with MKM Partners, who has reiterated a neutral rating for coffee chain Starbucks (SBUX). Given that “sell” is a four-letter word on Wall Street, even a neutral rating suggests poor performance ahead.

    The rationale for the move is that same-store sales are likely to decline by mid-single-digit trades. And the recovery play in the stock market has sent shares to being fully valued.

    Nevertheless, for a strong brand such as Starbucks, which continues to see massive store traffic and repeat buyers on a weekly or even daily basis, it’s clear that any decline will be muted.

    Action to take: With a neutral outlook and high valuation, it’s tough to see shares heading higher. But it’s also tough to see shares heading too far lower.

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  • For that kind of neutral outlook, traders can buy shares and collect a 1.7 percent dividend yield. Or, they can sell a put option. The March $105 puts are an at-the-money trade going for about $4.90, or $490 per contract.

    Sellers can see the cash in their account, and as long as shares don’t move too far down, they’ll make money. Just beware: Put sellers are on the hook to buy shares of a company at a set price, and the $105 strike price translates to a $10,500 commitment if assigned.