Super Hot TataCoffee! What's Roasting?

Unbelievable move by Tata Coffee over the last week or so. The stock's up from 570 to 907 in five days, a ridiculously massive move. I've been caught in this stock before - lost about 10% - but got back in a couple days back. It's very flaky, so you have to stay nimble.

The strategy here is all about position size. It's a volatile stock, so you have to keep wide stop losses. With a large position, you can't afford wide SLs, so you cut the volume down dramatically. Where a regular stock would be 5 to 10% of your portfolio, this stock will end up being 3 to 4%, perhaps pyramiding in with 2% as your first entry. First stop is 740 (see, that's a 20% loss right there) and the subsequent one is between 600 and 630.

TataCoffee Chart

Obviously there's some news. Arabica coffee prices are surging in light of poor supply, and Tata Coffee signed an early "hello, I know you exist" kind of deal with Starbucks. They have a TTM EPS of 31 (giving them a P/E again of around 30) - the third quarter was fantastic, with a 15x increase in profit.

Note that delivery volumes were like 2.5% today, a fairly low figure:


But in any sudden upsurge, trading volumes are key. The absolute numbers of delivered shares have gone up about 10x from earlier - ignore the percentage.

Recently, though, a promoter (Tata Global Beverages) pledged all their shares (57% ownership of the company). I don't rate the Tatas very highly as promoters, so this is a warning sign. (All that talk of them being clean is just hogwash. They're just as dirty as the rest.)

Disclosure: Long. But you never know.