Starbucks' Profit Aroma Is Invigorating

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NEW YORK (TheStreet) -- Twenty-six percent. That's how much higher shares of Starbucks are after my last article about the company, "Starbucks, the Doorway to the World," was published.

Expect Starbucks to continue serving fresh mugs of growth, profits and increasing dividends. In the last three years, the dividend payments have more than doubled. Based on the same period's payout ratios and profit growth, another increase within the next 12 months should not come as a surprise.

That's exciting news for shareholders, but more importantly, it's not too late to ride the java profit train. The key is management. During the Great Recession, Starbucks was exceedingly quick to close locations that weren't performing, thus preserving cash and shareholder value. Starbucks' management is battle-tested during growth and contraction periods. That's the safety net you want when buying 52-week highs. Shares of Starbucks closed Tuesday at $67.10.

As market conditions improved, management changed from a defensive posture back to growth and expansion faster than Jim Cramer can push the "buy buy buy" button on "Mad Money."

The current window of opportunity comes from Starbucks not reporting earnings until July 25. You can almost smell the profits brewing already, and the latest string of new 52-week-high closes clearly demonstrates the market approves displaying calories on the menu. Does anyone seriously believe hungry shoppers are not going to buy a food item because they now know the calorie count? Of course, they are going to buy. They may change their purchasing for a week or two, but not permanently.

Consumer decisions are based on emotion and justified with logic, not the other way around. Hunger is a powerful emotion, and digits on paper have little impact on a sweet tooth. I think the positive goodwill gained from increased transparency offsets changes in consumer behavior.

SBUX Revenue Quarterly Chart
SBUX Revenue Quarterly data by YCharts

Currently, analysts are anticipating about 53 cents a share in profits from the earnings report. The revenue and profit trend justify the market's bull trend reaction. You want to view each dip in price as a buying opportunity. Stocks don't travel straight up or down, and you can use the market volatility to your advantage.

For a conservative approach, wait for shares to drop two days in a row and buy near the open of the third day. Another approach that I favor is to sell cash-secured put options. Selling put options will lower your overall risk and can place the odds in your favor.

Right now, I like the August $65 strike price puts as an option short candidate. I want to receive at least $1.98 for premium. That's above the current amount, but the market rarely rewards rushing into a position instead of waiting for an optimal entry.

The advantage of selling an August $65 put is that your overall risk is reduced to about $63.02 and below normal retracement swings. The timing is advantageous also. The next earnings report is a month away, allowing about half the time until expiration to decay. If Starbucks fails to continue higher and trades in a range near the current price, you still profit.

That's why I like selling put options instead of buying stock. You gain if shares move in your direction -- and if they just sit there. If the shares fall, you lose less than if you bought a comparable number of shares outright.

I expect Starbucks to continue delivering profits one cup at a time.

At the time of publication, Weinstein held no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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