With coffee prices skyrocketing to new levels, it could be wise to add fundamentally strong coffee stocks Starbucks (SBUX) and Restaurant Brands International (NYSE:QSR) to one’s portfolio now. Conversely, given the weak fundamentals of Luckin Coffee (OTC:LKNCY) and Krispy Kreme (DNUT), these two stocks are best avoided now. Read on.Coffee prices have surged by nearly 63% year-to-date, due primarily to a demand-supply imbalance. Extreme drought and unexpected frost in Brazil, along with shipment delays, have caused supply shortages. But the demand for this beverage has remained high, especially among millennials.
Investors’ interest in coffee has remained high, as evidenced by the iPath Series B Bloomberg Coffee Subindex Total Return ETN’s (JO) 31.6% returns over the past six months compared to the SPDR S&P 500 Trust ETF’s (SPY) 9.8% gains. Shipping disruptions are expected to keep coffee prices high for some time. According to Trading Economics, coffee is expected to trade at 179.67 USD/Lbs by year’s end.
Therefore, we think it could be wise to scoop up the shares of quality coffee stocks Starbucks Corporation (NASDAQ:SBUX) and Restaurant Brands International Inc. (QSR), which hold solid growth prospects. However, Luckin Coffee Inc. (LKNCY) and Krispy Kreme, Inc. (DNUT), having weak financials, are best avoided now.