This from Investor’s Daily Edge:

Economists say this recession will last till June 2009 at least. Conventional wisdom says it’s time to buy defensive stocks—utilities, consumer staples, booze, healthy banks, drug companies, and defense contractors.

I’ve been walking around with my eyes open, and I don’t think so.

Last week, Andy and I went to the bank then stopped at Starbucks. There were no lines in the bank. We had to wait 10 minutes to get to the counter in Starbucks (NYSE:SBUX).

The legendary Howard Schultz is back, and so is Starbucks.

Schultz was the person who convinced the original coffee-roasting partners to expand in the 1980s when he visited them to find out why they were buying so many of the Hammerplast Swedish drip coffee makers he sold. They hired him for marketing help. But when Schultz’s best new idea was to open a coffee bar, they wouldn’t do it. Schultz quit, started his own coffee bar, and within a few years, bought the roasters out for $3.8 million and called it Starbucks.

He’s the genius who took Starbucks from one very cool Seattle store to 10,000 around the world.

If you missed that wave, catch its revival now.

This stock may be 76% off its 2006 high of $40, but it’s on the way back with Schultz at the helm.

Starbucks has been one of those growth stories that kept fooling people. At first, it was so hot everyone agreed it was going places. Cities were complaining if they didn’t have a Starbucks yet. Then it appeared to be in every town it could conquer.

So much for hot growth, though it was still a fine business, the analysts thought.

Except Starbucks’ Schultz knew better. Under Schultz’ guidance, Starbucks started putting two, three, four stores in a town…

And that seemed likely to end when the analysts noted there were corners with Starbucks stores facing each other.  Growth would slow.

Wrong again. Starbucks began sidling into the crevices, into grocery stores, bookstores, airports and little kiosks within other businesses. Growth kept rolling.

And it began going international.

Schultz, who founded Starbucks and embodied everything it stood for, retired as CEO in 2005.

But eventually growth did slow. Starbucks seemed to be courting trouble. Some of the stores weren’t selling well. In the meantime, Green Mountain (GMCR) had moved into similar niche locations and done much better at cornering the convenience store/gas station market. Dunkin’ Donuts expanded its coffee offerings. Peet’s started taking equal shares of grocery store shelf space.

Last January, Schultz un-retired. The first thing he set out to do was to restore the company’s feel. To him, Starbucks is not about coffee, it’s about the feeling of having coffee. It bothered him that when you walk into a Starbucks today, it no longer smells good. Schultz moved quickly to shut down stores that weren’t selling enough. He set out to ramp up international sales.

And he vowed to make Starbucks a real coffee place again. Grinding beans in the stores is to make a comeback. And now there’s Clover…

Clover is a special brewing system. The Clover choice costs even more than regular high-priced Starbucks. Another new system will improve on the espresso, grinding the beans for each cup, as they should be.

I expect Starbucks to recover its momentum this year. The international expansion is particularly promising. Even Starbucks-besotted Americans are pikers among international coffee drinkers.

Americans consume just over 4 kilograms (8.8 pounds) of coffee beans per person a year. The Scandinavians drink two to nearly three times as much, with Finland leading the way. The Swiss, Germans, Dutch, French, Austrians, Belgians and Italians drink 5 to 6 kilograms to our 4. Plus, Europe is like the U.S. pre-Starbucks. Coffee is sold locally, in restaurants and independent cafes.

Source: Wikipedia, consumption in kilograms per capita

So, yes, there’s a global recession on. Yes, premium coffee is a luxury compared to the can of Folgers in the supermarket. But think booze…

Spirits and beer sales usually hold up well in bad economies because they are modest luxuries. It’s not that everyone is suddenly a drunk (though some are to be sure). Rather, most drinkers consider that cold beer an affordable treat. A cup of Starbucks fills the same role in the non-alcoholic beverage world.

Will Starbucks really be the absolute best stock of 2009? Nah. Probably not. That one will probably be an out of the blue surprise. But Starbucks will be one of the great ones. I’m expecting the shares to rise 100% or more in the next year and triple in two years.

Source: A Cheap Luxury for a Dreary Economy

Starbucks, the coffee house chain, on Wednesday blamed a “sharp weakening” in the consumer economy for an unexpected decline in its US sales, sending its shares plunging more than 10 per cent in after-hours trading.

Howard Schultz, who returned to the role of chief executive in January, said “the current economic environment is the weakest in our company’s history”, citing the housing slump and rising energy and food costs.

The company’s history goes back to 1971, the year Bretton Woods fell apart and Nixon closed the gold window. So for Schultz, things are worse now than the double-dip recession in the early 80s, the worst of the postwar era. Grim stuff indeed for a company whose entire business model is built on an “affordable luxury.”On the subject of historical comparisons, Robert Shiller — he of the Case/Shiller home price index — is going all the way back to the Great Depression, when housing prices dropped 30%. He says an even bigger drop is possible now (with prices having already fallen 15% in his estimation).

Home prices rose about 85% from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Mr. Shiller said. “Basically we’re in uncharted territory,” he said. “It seems we have developed a speculative culture about housing that never existed on a national basis before.” Many people became convinced that housing prices would increase 10% annually, a notion Mr. Shiller called crazy.

And there’s another property time-bomb looming. In fact, it’s one of five “super shocks” about to hit the U.S. economy and stock market in the very near future. For a seven-part defense strategy, check out this special report.

For a company known as a purveyor of fine (if not overpriced) coffee, this is a huge step outside their core competency. And, in my opinion, it’s a big mistake. With the company stock price down 50 percent in the last 16 months, now is not the time to be breaking into unfamiliar markets. For one thing, branching out costs money. For another, Starbucks risks losing brand identity as it expands its product line away from coffee.

The company is already facing shrinking margins due to increased costs of sales (up 1.1 percent versus last year) and increased operating expenses (up .90 percent). It is closing 100 under-performing stores, and reducing the number of store openings this year. Taking on the additional costs to expand into another market just doesn’t seem like a wise decision. Not to mention that the expansion would be into the highly fragmented energy drink market.

With Starbucks’ stock already down dramatically from its peak, it may appear that the opportunity to profit from these missteps is past. But I believe there is still more room for the stock to fall. And I don’t think the slide will stop until the share price is in the single digits. So taking a short position against the coffee king can add some diversity to your portfolio… and be a profit opportunity in a falling market.

Meanwhile, if you hold Starbucks stock, it might be time to dump it.

[Ed. Note: Rick Pendergraft is a professional trader and market analyst. In Rick’s new investment service, he gives easy-to-follow, step-by-step advice that you can use to create a consistent, automated income. Learn more about how he can help you produce explosive gains - no matter which way the market is trading - here.]