3 beaten-down luxury stocks to buy now
The retail sector has been hammered but consumer spending will come roaring back. Focus on these high-end names.
By Jamie Dlugosch
Say what you will about a dicey market . . . I'm jumping on the rally train.
Who's joining me? You will if you want your portfolio to rock. If that is the case, just what stocks should you be buying today?
I like to buy the downtrodden, as those stocks that are out of favor today become the darlings of tomorrow.
And if there was ever an out-of-favor sector, it would be the retail space. The weather-related mini-recession (or at least that's what I call it) is long passed. In its place is an economy that is growing and growing strongly.
Retail sales are on the upswing fueled by gains in the job market and improving incomes.
At the end of the day, people in this country want to spend money. It's our favorite pastime and though our balance sheets may have been crushed by the financial crisis, our willingness to spend was not.
Now with those same balance sheets healed and improving, consumers are set to go on a consuming spree like never before.
The timing is perfect
Think about it. Demand has been building up for all these years. We want to buy, we have to buy. It's in our DNA.
What exactly will we be buying? Already we are seeing auto sales increase on a monthly basis. That spending might be more out of necessity.
What about a true discretionary spend, the kind that gives you a tinge of regret after the moment? I'm talking about luxury. In a keep-up-with-the-Joneses mentality, we in this country strive to have the nicest things on the block.
And guess what . . . the luxury space has been weak from a stock standpoint. The timing to buy luxury stocks might never be better.
I have my eye on three of them that I would consider owning today -- before these companies release earnings. Those operating numbers might be better than expected, giving a boost to share price.
Here are the three great luxury stocks to buy now:
Michael Kors (KORS)
Shares of Michael Kors have plummeted back to earth since breaking $100 per share this past spring. At that time, a solid earnings beat kept investors enthused for the growth story in this luxury brand. Recently, Wall Street has soured on the name concerned about deep discounting via inventory sales. The mustard is off the hotdog.
Hogwash, I say. Michael Kors is the must-have brand and when consumer spending roars back to life, so too will the stock. You’ll want to own Kors before that happens. There aren't many companies growing profits at a 20 percent or more clip like Kors. With the share price down, you can now buy that growth for 20 times 2014 estimated earnings. Historically speaking, that is downright cheap, especially if growth is stronger than expected when the company reports earnings in early August.
If you listen to the financial press, you might think that Coach is finished. The stock has sure acted like this luxury retailer is going out of business.
The obituary is a bit premature, if you ask me. The Coach brand still has cache and while management has failed to invigorate the company during a difficult economic time, the job gets a lot easier when consumer spending increases. That's going to be the case in coming quarters.
The best time to own a stock is when there is blood in the street, as there is here with Coach. An improvement in sales and future prospects could result in a snap-back rally.
The time to own it is before the company reports earnings. At that time a strong report could have the stock up 20 percent. Short interest is high and they will be cut down when this company shows it can beat expectations. That time may be when Coach reports earnings in late July.
Ralph Lauren (RL)
Shares of Ralph Lauren were negatively impacted by the poor economic performance in the U.S. during the first quarter. As a result shares of the company are well off their 52-week highs.
It's all about sentiment and right now the sentiment is poor. Indeed, consumers had been struggling as the economy righted itself, but times are beginning to improve.
If you want an outlier outcome for the future, it would be that economic strength will be stronger than most expect. Why do you think the Federal Reserve is setting the stage for higher rates? They are doing so just in case GDP is higher than forecast.
Growth at Ralph Lauren is expected to be tepid in the current fiscal year ending March 2015. I'd bet those numbers are too conservative. Ralph Lauren luxury is still desired and with extra cash look for sales to improve.
I'd buy the stock before the next earnings report to be released around Aug. 6.
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