2 Stocks Embarrassed by the Dow

The markets limped to a loss yesterday, but some companies have fallen even harder recently, so first let's see whether they had good reason to drop. Sometimes, panic-fueled declines can make excellent buying opportunities.

Welcome to the tea party
While the idea of creating a premium tea-drinking experience the way Starbucks  (NAS: SBUX) did with coffee shops should be within the realm of possibility for tea sipper Teavana (NYS: TEA) , the reality is proving more difficult than expected. Sales rose 27% in the first quarter, but came in below analyst expectations, and the stock dropped 18% in one day as same-store sales weakly rose 1.7%.

Slowing growth was also evident in its bottom line, which showed earnings grew 6% in the quarter, but that was down from 36% growth in the fourth quarter and a doubling of profits in last year's third quarter. With Teavana being publicly traded for less than a year, investors may be worried that growth will soon stagnate.


Despite U.S. tea sales forecast to hit $15 billion this year, Americans are still by and large coffee drinkers, consuming 146 billion cups of joe every year. Conversely, tea drinkers down just a third of that amount, and most of that is iced tea.

With Starbucks, Dunkin' Brands, and even McDonald's (NYS: MCD) , there are plenty of places to get a caffeine fix without having to search out a more sedate tea experience at a Teavana shop. All of these alternatives also offer seating for customers to enjoy their beverages, whereas Teavana is more of an in-an-out purchase, and therefore likely won't be able to capture the same "third place" potential that's made coffee brewers so successful.

CAPS All-Stars are evenly divided on whether the tea purveyor can beat the market average going forward, and even the broader CAPS community is doubtful, with just 60% believing it will beat the Street. Although there appears to be a market for Teavana's product, it seems more of a niche rather than a national phenomenon. So bag the tea maker by adding it to your watchlist and then tell us on the Teavana CAPS page or in the comments section below if you think branded tea shops are more fad than icon.

That sinking feeling
The shipping industry is still floundering, and tanker leader Frontline (NYS: FRO) has spotlighted this performance after a research note from Deutsche Bank indicated the shipper's CEO is thinking more about his spinoff Frontline 2012 than his flagship company.

Even while the inventory glut of new ships is easing, John Fredriksen is selling his privately held new-build order of 16 tankers to the spinoff rather than to Frontline, which has an aging fleet. Thus, when equilibrium is eventually restored, the tanker specialist will still be a laggard. While Frontline still owns about 9% of its offspring, with rates expected to remain weak for some time to come, analysts generally don't expect much of an improvement from it. As one analyst noted, "Frontline 2012 appears to be the growth vehicle of the group now."

Don't look to the dry bulk market for any respite, either, as DryShips (NAS: DRYS) is also still tempest-tossed, with earnings coming in weaker than expected. The eddies of discontent are still dragging shippers down and it doesn't seem like a place to put your money at this time. With Europe about to collapse and even China coming in for a harder landing than many analysts had expected, world trade is likely to take a hit, which is why CAPS member bIlluminati expects Frontline to underperform the indexes.

Let us know in the comments section below or on the Frontline CAPS page if you agree the stock is no longer on the front lines of growth, then add the tanker to the Fool's free portfolio tracker to see if it can extricate itself from the whirlpool.

Ready for a resurrection
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of McDonald's and Starbucks, as well as writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Tea

Teavana has alienated a number of potential customers as evidenced by many negative reviews on yelp.com and other web sites. They don't seem to treat their employees very well either (see glassdoor.com for evidence of that). It's no wonder there's always a "Now Hiring" sign in many of their locations.

June 07 2012 at 2:12 AM Report abuse rate up rate down Reply