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A Closer Look at... Krispy Kreme Doughnuts, Starbucks, and Dunkin' Brands

Checking out the contrarian prospects for KKD, SBUX, and DNKN

by 11/11/2011 2:00:36 PM
Stocks quoted in this article:

With the holidays right around the corner, American consumers need their energy now more than ever. And what better way to help you power through family time and/or packed toy stores than with coffee and breakfast -- which, after all, is the most important meal of the day? With that in mind, we thought we'd take a look at a trio of morning-related stocks that could get a contrarian jolt higher: Krispy Kreme Doughnuts (KKD - 7.55), Dunkin' Brands Group Inc. (DNKN - 25.93), and Starbucks Corporation (SBUX - 44.32).

Krispy Kreme Doughnuts

Technically speaking, KKD has advanced more than 34% during the past year, tacking on roughly 5.2% in 2011. From a longer-term perspective, the equity has spent nearly three years embarking on a series of higher highs and lows. In fact, the shares recently bounced off the trendline connecting its lows, suggesting now is an opportune time to jump in on KKD's next leg higher.

Monthly price chart of KKD since March 2009

Regardless of KKD's longer-term uptrend, most of the Street remains skeptical of the stock. For instance, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.30 stands just 10 percentage points from a 52-week peak. In other words, short-term options players have rarely been more put-heavy on KKD during the past year. An unwinding of pessimism in the options pits could translate into a contrarian boon for the equity.

Meanwhile, despite depleting by 8.6% during the most recent reporting period, short interest still represents more than a week's worth of pent-up buying demand, at KKD's average pace of trading. Should more short sellers abandon ship, a short-covering rally could propel KKD even higher.

Traders anticipating a continued ascent for KKD may want to consider the stock's February 5 call.

Dunkin' Brands

The shares of DNKN recently pulled back to familiar support in the $25.50-$26 neighborhood, which has acted as a springboard higher for the stock over the past couple of months. What's more, put open interest in the front-month series sits at the November 25 strike, with more than 2,000 contracts in residence. Going forward, this abundance of bearish bets could serve as an added layer of options-related support as expiration approaches. As such, now could be a prime opportunity for bulls looking to jump in on DNKN.

Daily price chart of DNKN since September 2011

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