What’s Brewing at Starbucks (SBUX)

We’ve profiled and suggested trades in SBUX in July and just last week. We’ve stressed that this is a turnaround play with poor sales growth.

We normally avoid situations like this. Accelerating sales growth normally makes the difference between “a trade” and a worthwhile investment.

But the stock has done quite well for itself in spite of the lack of turnaround in sales. We think the market has been forgiving for two main reasons: clearly we are in a very bullish environment and founder Howard Schultz has returned to the helm. Under his previous stewardship the price of the stock soared into the stratosphere as SBUX became a household name.

But SBUX might just have a new trick up its sleeve to keep profits accelerating long after cost cuts can no longer propel earnings. Today the company is introducing their instant coffee product, Via.

We haven’t tasted Via. And frankly if we didn’t own the stock we wouldn’t be much interested. But that’s the point. Instant coffee is a product that a number of years ago left us, and we’re sure many others, with an impression of an inferior product best avoided. But according to an article in today’s Wall St Journal this is a $21B market. Given our push button, disposable world there clearly is a huge opportunity for a company that gets it right.

The company wouldn’t comment on the results of their test marketing, saying only that sales “exceeded expectations” according to The Journal. But this is the sort of thing we look for in any company whose stock we choose to invest in; the “new” that could drive sales, profits and the stock price. Even an old dog like SBUX can reinvent itself, like Apple (AAPL) with its iPod.

The company is introducing the product in time to encompass the entire fourth quarter thus there won’t be anything tangible in the third quarter earnings report. But should Via gain traction look for enthusiasm over it to drive the stock.