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(B)(N) GMCR Green Mountain Coffee Roasters Incorporated

June 7, 2013

Drama. Green Mountain Coffee Roasters imports the beans of Mexico and Tanzania, and other places, we don’t know where; roasts, packages, and delivers them wherever they are wanted and in whatever form is attractive and handy; in bags, pouches, cups, coffee makers, and so forth.

There is much to be admired but our job is to take a look at the stock because the pundits and touts keep claiming a miraculous healing cure for our wallets (Financial Post, June 6, 2013, Green Mountain to boost Montreal operations with as much as $50M investment).

Breakfast Blend

Green Mountain Breakfast Blend

We can see from the Chart (Exhibit 1 below) that all would be well if we remembered to sell at $115 in 2011 and had bought it at $20 or less two years before. And behold, we did, but somebody bought it from us at $115 and thought it was going to $200 and had no caution, no tinkling sensation, that it might go to $20, again, in just a year?

Green Mountain Coffee® Artisan Mug

Waterbury, Vermount

Undoubtedly, we live and die by earnings, a common experience, but when the earnings dry up, also a common experience, good that we have some substance. Nevertheless, the stock market value of Green Mountain has increased ten-fold since 2009, from $1.1 billion, to the current $11 billion, and still isn’t paying a dividend.

Stirring the pot, we note that there are just four institutional holders, with familiar names and deep pockets that have no need of dividends to buy the groceries or pay the rent, who own more than 40% of the stock; plus another ten who own 2 million shares or more, worth $150 million or more, to bring the total to 70% of the stock; and, guess what, it is they who will tell us what the price of the stock is today.

Our estimate of the demonstrated downside volatility in the stock price is minus (-$16) so that we would not be surprised by any price between the current $75 and $60 or $90, a substantial range.

We can afford to set the stop/loss at $70, say, but might be sold out for a profit of $10 this year (please see Exhibit 1 below, Red Line Stock Price (SP) above the Black Line Risk Price (SF), and for no other reason) but the options market is quite full and we can buy the July put at $70 for $2.60 today and sell a call at $80 against our long position for $2.40 so that for a cost of $75 to hold the stock and $0.20 per share for the “collar” ($2.60 less $2.40), we can decaffeinate at our leisure for between $70 and $80 for next month, and see how we feel then.

Exhibit 1: (B)(N) GMCR Green Mountain Coffee Roasters Incorporated – Risk Price Chart

(B)(N) GMCR Green Mountain Coffee Roasters Incorporated

(B)(N) GMCR Green Mountain Coffee Roasters Incorporated

Green Mountain Coffee Roasters, Inc. is engaged in the specialty coffee and coffee maker businesses. It has three business segments, the Specialty Coffee business unit (‘SCBU’), the Keurig business unit (‘KBU’) and the Canadian business unit (‘CBU’).

(Please Click on the Chart to make it larger if required.)

From the Company: Green Mountain Coffee Roasters Incorporates engages in the specialty coffee and coffeemaker businesses in the United States and Canada. It sources, produces, and sells approximately 225 varieties of coffee, cocoa, teas, and other beverages in K-Cup and Vue single serve packs; and coffee in traditional packaging, including whole bean and ground coffee selections in bags, and ground coffee in fractional packs. The company sells these products to supermarkets, club stores, and convenience stores; restaurant and hospitality industries; and office coffee distributors, as well as directly to consumers through its Website. It also sells at-home and away-from-home single cup brewers; accessories; brewing equipment; and coffee, tea, hot cocoa, and other beverages in single serve packs to retailers, department stores, and mass merchandisers, as well as directly to consumers. In addition, the company produces and sells other specialty beverages, including hot apple ciders, hot and iced teas, iced coffees, iced fruit brews, hot cocoa, and other dairy-based beverages in single serve packs. Green Mountain Coffee Roasters Incorporated was founded in 1981, has 5,800 employees, and is based in Waterbury, Vermont.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.Disclaimer Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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