Cramer's New Caffeine Pick (PEET, SBUX)

Tonight, Jim Cramer compared Peet’s Coffee & Tea Inc. (NASDAQ:PEET) to Starbucks (NASDAQ:SBUX) as an obituary pick on CNBC’s MAD MONEY.  It wasn’t praise or criticism, just reviewing a company after the founder had passed away.  Peet’s Coffee & Tea Inc. (NASDAQ:PEET) founder Alfred Peet died last week at the age of 87, and Cramer said this caused him to review the company for an opportunity.

Cramer said that he actually thinks Peet’s is better off from an investor standpoint than Starbucks (NASDAQ:SBUX) is today.  The reason is that it has so much growth ahead that it can take a measured growth rate over the past rapid growth of Starbucks, and the forward earnings multiple and growth rates are actually better at Peet’s if you compare the Starbucks overly aggressive growth initiatives it has.  Starbucks actually learned much from Peet’s in the past.  He thinks they also have ample supplies of Coffee beans and have many more markets where they are either not in at all or have not penetrated; NO ONE can say the same about Stabucks.  In fact, Cramer said that for Starbucks to manage their growth plans they may have to hire 90,000 people to make it happen.

We gave our own product reviews of Starbucks early on in calendar Q2.  Unfortunately we saw that they have a long way to go to improve the stores they have now if they are going to run these like a factory with the breadth that they have.  Starbucks is about 10% off of its recent year-lows and the worst MAY be behind compared to that big slide down from $40.00.  But it has a lot of proving to do, and it has a long road ahead of itself if it wants to grow according to its plans.

Peet’s shares closed up 1% at $25.55 today, but shares rose almost another 3% in after-hours.  Its 52-week trading range for its stock is $22.98 to $29.17.

Jon C. Ogg
September 4, 2007

Jon Ogg can be reached at [email protected]; he produces the Special Situation Investing Newsletter and he does not own securities in the companies he covers.