Which Drink Stock Should You Put in Your Memorial Day Picnic Basket?

Beverage stock Starbucks Corporation (NASDAQ:SBUX) is historically one of the top performers during the week of Memorial Day, while sector peer Dr Pepper Snapple Group Inc. (NYSE:DPS) is among the worst stocks

May 27, 2016 at 7:30 AM
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Schaeffer's Senior Quantitative Analyst Rocky White recently compiled a list of the 25 best- and 25 worst-performing stocks for the week of Memorial Day. Among the top performers is coffee stock Starbucks Corporation (NASDAQ:SBUX), while sector peer Dr Pepper Snapple Group Inc. (NYSE:DPS) falls among the underperformers for the holiday week. Let's take a closer look at these diverging beverage makers.

SBUX has returned an average of 1.7% during Memorial Day week over the past 10 years, and has yielded a positive weekly return seven times. The stock finished Thursday up 0.3% at $55.29, after CEO Howard Schulz said that the company's business in China and India could eventually surpass that in the U.S. But SBUX has been on a downtrend since hitting a record high of $64.00 last October. In fact, the shares are currently down 7.9% year-to-date.

Yet, analysts appear optimistic that SBUX will soon be headed higher. Of the 19 brokerage firms following the stock, 14 rate it a "buy" or better, with not a single "sell" opinion on the books. And the average 12-month price target of $68.13 is in never-before-seen territory.

Bulls appear to be in control of the options pits, too. The stock's 50-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is parked at 1.76 -- higher than over two-thirds of the past year's readings. What's more, it looks like a tempting time to pick up SBUX's near-term options, as the security's Schaeffer's Volatility Index (SVI) of 17% is seated in the 8th percentile of its annual range -- suggesting premium on Starbucks Corporation's (NASDAQ:SBUX) short-term options is pricing in relatively low volatility expectations at the moment.

DPS, meanwhile, has averaged a Memorial Day week loss of 1.1% over the last eight years, after going public in early 2008. Of those eight years, the stock has finished the week in positive territory only twice.

DPS finished Thursday up 0.4% at $92.18, bringing its year-over-year gains to 19%. It looks as though the stock may finally be getting some traction on the charts after mostly slumping through the first four months of 2016, helped by a sharp bounce off of its rising 200-day moving average. In fact, DPS has been getting support from this trendline since last August, and is now just a chip-shot away from its early February record high at $95.87.

Analysts and traders alike have been pessimistic toward DPS lately. In fact, 77% of analysts rate the security a "hold" or a "sell." Meanwhile, short interest has been slowly increasing, now representing eight sessions' worth of trading, at DPS' average daily volume.

Options traders are more bearish than usual, too, with the stock's 10-day put/call volume ratio across the ISE, CBOE, and PHLX higher than 66% of the last year's readings, at 0.85. Likewise, DPS' Schaeffer's put/call open interest ratio (SOIR) of 0.50 is higher than almost three-fourths of all readings from the last 12 months. And like SBUX, Dr Pepper Snapple Group Inc. (NYSE:DPS) is presenting a prime opportunity for options buyers, with its SVI of 18% in the low 11th percentile of its annual range, indicating the stock's near-term options should be attractively priced.

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