4 Valentine's Day stocks to watch

Feb. 14 is a critical sales day for a handful of industries, and a strong performance could be enough to send their shares higher.

By TheStreet Staff Feb 10, 2011 12:22PM

more stock picks and investing ideas from stockpickr.comBy Jonas Elmerraji, Stockpickr

 

Valentine's Day is less than a week away, but before you scramble to make last-minute plans with your significant other, don't forget about the market impact that Feb. 14 could have on a handful of stocks.

 

It might seem strange to think that Valentine's Day could have an impact on anything other than your romantic life. But Valentine's Day is a critical sales day for a handful of industries, and strong performance in 2011 could be a nice upside catalyst.


To be sure, event-driven-buying hypotheses rarely hold up to scrutiny -- most traders believe the implications of key sales days are already priced into shares -- but under certain conditions, there are exceptions to the rule.

 

That's especially true with holidays like Valentine's Day, when the affected companies are generally beholden to discretionary spending trends. With spending on an uptick, those companies are likely to see a disproportionate benefit from any incremental consumer dollars.

 

When that happens, the potential for earnings surprises -- or press releases, upward earnings guidance or simply improving sentiment -- becomes a reality. With those factors in mind, here's a look at four Valentine's Day stocks to watch this year.

Earlier, I mentioned that Valentine's Day can be a truly significant earnings contributor for some industries. One is flowers. Florists generally see as much as a third of their annual revenue surrounding Valentine's Day, making it a primary driver of share price for publicly traded flower companies. Two of the most significant are 1-800-Flowers.com (FLWS) and United Online (UNTD).

 

While the pure-play FLWS offers the most direct exposure to the floral industry right now, the stock's fundamental performance hasn't been particularly auspicious over the past several years.


United Online, on the other hand, has been making some significant improvements in its operations -- enough to justify a second look right now. Known best for its Internet offerings, such as NetZero, United Online also owns a significant online florist business in FTD.com and its UK equivalent, Interflora.

 

While United Online's other operations are significant, its floral business is more so. In total, the FTD division, which controls both floral sites, contributes nearly 40% of total income to UNTD and a full 60% of annual revenues -- a number suggesting that as FTD goes, so goes United Online.


While United Online has faced a number of operational challenges, particularly as revenue dried up in 2008, the company's return to thick profit margins is an attractive sign for current investors.

 

Tiffany (TIF) has seen terrific performance in the past year, with shares gaining 57% on revenue and earnings growth. That trend could continue, thanks to a major uptick in Valentine's Day jewelry sales. In total, sales of jewelry are expected to increase by $500 million this Valentine's Day, a nearly 20% increase over last year, according to the National Retail Federation, making the sparkly stuff the biggest single gift item by dollar volume.

 

For Tiffany, an enviable brand and innovative offerings should help spur major growth this month as consumers become more and more willing to part with cash for premium marquees.


But Valentine's Day is only part of the equation for this stock. Right now, burgeoning demand for luxury goods in developing nations looks to be a major point of focus, even in the near term. And the company's diverse product range, which includes jewelry and fine china, should see secular growth from the buoyant luxury-goods market in 2011 and beyond.

 

While Tiffany's is still far from the deep-value buy that it once was, rising tides lift all boats. The trend toward increased luxury spending is worth jumping on right now.

 

Tiffany shows up in the portfolio of John Rogers at Ariel Capital Management, as of the most recent reporting period. With a B "buy" rating, it's one of TheStreet's top-rated specialty retail stocks.

 

Despite its product ubiquity on store shelves, Hershey (HSY) is still dependent largely on seasonal sales during candy-crazed holidays such as Halloween, Easter, Christmas and Valentine's Day. The company benefits from higher promotional pricing as a result.

That promotional pricing could be critical for Hershey right now. With commodity inputs -- namely cocoa -- undergoing material price increases right now, the company will need to continue to pass some of those costs on to consumers in order to avoid painful margin squeezes. Hershey's leading market share and beloved brand should help shoulder some of the revenue decline that could come as a result of increased pricing -- consumers are relatively brand-loyal in their discretionary purchases.

 

Even though the Valentine's season is the smallest of the four events that the company focuses on, it's nonetheless significant. That's because it's the first candy holiday for 2011 and a good bellwether for how investors can expect sales to hold up for the rest of the year. Strong sales this month should parlay into increased share prices further out.

 

To see these stocks in action, check out the Valentine's Day Stocks 2011 portfolio on Stockpickr.

 

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