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Green Mountain, Starbucks Unveil Icy Offerings

The Exchange

Green Mountain (GMCR) and Starbucks (SBUX) are both taking a gulp of the iced fruit drink market today in what is apt timing during a summer already marked by sweltering heat waves.

Green Mountain has unveiled two new cold drinks designed for its Keurig coffee brewers, including its first-ever iced fruit drink, Vitamin Burst. At the same time, Starbucks is debuting its Refreshers line; these beverages combine green coffee extract with fruit juice.  The promo push for this new drink includes a 12 oz. Friday the 13th freebie at stores across the country.

Green Mountain stock wasn't energized by its icy announcement; in fact, in midday trade, shares were down more than 6 percent. This follows yesterday's slide of around 4 percent, in which GMCR slipped below its 50- and 200-day moving averages. In a stock that is down about 50 percent year to date, 75 percent since this time last year and 80 percent from its all-time high, you could say today's slip sticks with the recent trend.

But the trend over the two weeks before this one was actually upward; from June 22 until July 6, shares jumped 20 percent. July 6 marked its highest-volume day during this period; while GMCR trades at an average volume of around 7 million, it hit more than 11 million that day.  During the same two-week period, Starbucks, which is up 15 percent for the year (and up fractionally in today's afternoon trade), was down close to 5 percent.

Coincidence? Perhaps, but a few among our Yahoo! Finance staff members noted that this disparity between the two rivals over the same time period mimics the sort that would go along with possible buyout rumors.  An Internet search for such rumors, alas, proved fruitless, so it's safe to say that isn't the case here.

The stock does have a short interest of about 20 percent, which is significant if not enormous, and some analysts have suggested that the recent rise may have been due to short-covering. One of the stock's most well-known shorts is manager David Einhorn, who last October 17 killed the company's caffeine buzz in a presentation that highly criticized its business model, transparency and accounting. The stock was trading at around $82 on that day. Today it's at $21 and change.

Analysts weighing in on GMCR's recent momentum include Piper Jaffray's Nicole Miller Regan, who appeared Monday on CNBC and declared that investors diving into the stock were in for a "very bumpy ride" and, as stated above, "there was no positive catalyst behind this recent run in the stock."

With the risk profile attached to a company that is experiencing  exec shakeups (including founder Robert Stiller's recent removal from the Board and CEO Larry Blanford's announcement of  his plans to retire at the end of next year ), increased competition (including from Starbucks, which on March 9 announced it would enter the single-serve market with its own brewing machine, Verismo) and a looming expiration of patents that could give these competitors a huge advantage, she suggests SBUX is a better buy better for long-haul investors (while traders may see more upside).

Investors will get more of the Green Mountain view with the company reports earnings in a few weeks. Even with a positive report, investors may be concerned: Green Mountain hasn't had two consecutive strong quarters for a long time, one of the reasons the stock has plunged so far from its highs. The company is so far projecting earnings of 48 cents to 53 cents a share on sales growth of 20 percent to 25 percent.

What do you think? Is Green Mountain a buy? Or should investors steer clear?