FXstreet

A lot of readers asked why I didn't research Starbucks before recommending a new client sell it. It's a fair question that merits a thoughtful reply.



The stock's price-to-earnings multiple is 19 which is comparable to that of the S&P 500. A company without a clear growth plan trading at a market multiple is not a compelling investment. To be compelling, the stock would have to be a lot cheaper, or the CEO has put forth a credible plan to restore growth. Until then, there is no way Starbucks would not crack my top 20 stocks so I am comfortable that selling it is the right call.

Even if I were convinced that Starbucks was a top 20 stock, I would still recommend selling enough to bring the position down to 5% of her portfolio. Keeping 20% of the portfolio in any stock just to avoid the capital gains tax is a bad idea. There are cases where a stock is so compelling that I would be willing to let it be a 20% position. But the strongest case for Starbucks, as put forth by its CEO, falls far short of that.

Yes, it is still possible that Starbucks is a gem that all of my managers and I missed. I can live with that. There are plenty of other stocks with better chances of delivering a good return for investors.

more...