• decided to close some 600 stores (I might be wrong on this figure)
• The Founder  (Howard Schultz) has had to come back to “save” the company
• They closed all Starbucks for a couple of hours to “retrain” their barristas

I am pretty sure there is more but lets see what Starbucks has going for it:

Pros of Starbucks

1. Starbucks has created the best “experience”. Their coffee houses (restaurants?) are filled with college students who hog a table for hours, while taking a sip.
2. Starbucks has great variety in coffee
3. Starbucks has very loyal customers that will frequent the stores no matter what
4. Starbucks has yet penetrated emerging markets

Cons of Starbucks

1. Competition, Competition, Competition! – McDonald’s and Yum! have introduced their own iced and premium coffee
2. Current economic headwinds- Premium coffee hurts the wallet a bit more during economic slowdowns.
3. Schultz has to move the ship in the right direction quick if he wants to get Wall Streets attention

Is Starbucks a possible Magic Formula candidate?

I had a brief discussion with DaveinHackensack on GF about SBUX and we both agreed that if Starbucks continues to get pummeled, it will merit consideration for a purchase.

Earnings Yield= 6.45%

ROIC= 23.55%

Earnings yield is below my minimum requirement of 10% and ROIC is decent but not great compared to current magic formula stocks.

Disclosure : I have no position in SBUX

In a recent interview on the Fox Business Channel, Warren Buffett talked a bit about those fat pitches that he did not swing at (Starbucks, Fannie-Mae, Wal-Mart, Costco). Unfortunately for investors, this will occur more than once and one has to not those fat pitches get away too often.

From personal experience, those missed pitches hurt the most when one’s portfolio is lagging the benchmarks. Around September of last year, analysts were expecting steel prices to fall and many steel companies were trading at or near 52 week lows. This caught me by surprise as I knew steel prices were on the rise and not on the decline. I knew this from our steel suppliers who warned me about great demand from overseas. The same supplier also told me about consolidation in the industry (his firm was bought out by Ryerson (RYI)). So there I was with what Peter Lynch called the “amateur edge”. Nuecor (NUE) in particular caught my attention as it appeared in the magic formula screen for the top 25 ranked companies with a minimum market cap of 2000 million. I did my usual homework of reading several 10-K’s and 10-Q’s and thought the company would be a great buy, it was only a matter of swinging and waiting for the street to catch up to me. The street eventually did catch up, only problem is I never swung at that fat pitch. Nuecor recently traded as $83.