Talk about a caffeine kick.
Shares of Starbucks got a serious jolt Thursday, up more than 2 percent and hit a three-month high, after UBS upgraded the coffee giant to “buy” from “neutral.”
In an analyst note, UBS cited four main reasons for the upgrade: 1) potential upside to consensus expectations; 2) increased conviction for sustainable growth; 3) reduced fears of operational risk; 4) attractive valuation.
(Watch: Starbucks still expensive: Trader)
But with coffee prices up around 45 percent this year, should you buy Starbucks for your portfolio?
“We all know Starbucks is a fine company here, but I think both traders and investors alike need to manage their expectations and in fact, I think the best days are behind this stock,” said Auerbach Grayson’s global technical analyst Richard Ross.
Ross pointed out a number of technical indicators that could spell trouble for the stock. “Keep in mind last year since breaking above the 50-day moving average, the stock was up 50 percent, we then get a 17 percent pull back, we take out the 50-day and the 200-day, which is bad, we get a 50-day crossing below the 200-day, once again you don’t like to see that.”
In addition, Starbucks shares are down more than 1 percent this year, and trading just below a key level of resistance at $80 per share, both causes for concern according to Ross.
“Once again the best days are behind Starbucks, you’re not going to get hurt too badly here, famous last words, but I don’t love the stock, I think this is far from a compelling entry point as today’s bullish upgrade has suggested,” he said.
But Steve Cortes of Veracruz TJM admittedly needs his coffee fix, and is right on board with UBS’ upgrade. “Betting against Starbucks has been a losing proposition for a long time. This is an incredibly well-managed company.”
And contrary to Ross’ call, Cortes thinks the best days for Starbucks are still ahead. “It has been a laggard on the year, and the main reason for that was that coffee prices were absolutely soaring the first 4-months of the year, but that situation has turned around dramatically,” he said, pointing out a decline in coffee prices will significantly help Starbucks’ margins. “I am a fan, I am a customer, viva Colombia and viva Starbucks.”