Good Company, Bad Company
Revisiting a Choice: Coach Bag or Coach Stock
Back in August 2008, we posed a question to our women readers. The new line of Coach bags had just come out, and we asked which would be the better buy: a Bleecker Leather Patchwork Tote, which retailed for $499, or the equivalent amount of Coach stock. The shares of Coach closed at around $29 that day, so you could have bought about 17 shares of Coach for the same price as the handbag.
We played the Devil’s advocate, or should we say Devil-Wears-Prada advocate. Let’s assume that our reader bought the new Coach bag for $499, instead of saving the money or investing it. It may have cheered her up as she carried it to the office. But the thrill of new stuff does seem to wear off fairly soon, at least for some of us, and we start taking those splurges for granted. Just another cool handbag or snazzy pair of shoes that hurt our feet.
But what if she had decided to invest the money instead, and spend $499 on Coach company stock? As the recession deepened and the market bottomed in March, she probably would have been kicking herself for not buying the bag. The stock dropped to $11.80 a share, and her $499 investment would now be worth $200. A full year later, however, in August 2009, the bag would be getting a little worn from use (that is, unless it wound up in the back of the closet). But what happened to the stock? It went back up to its original purchase price of $29, meaning she could sell the stock and buy a brand new bag. But what if she had kept the stock
and decided to let it ride. The stock, as of April 25, it was worth $43.50 a share, making her initial investment worth around $740. That’s a gain of around 50% for just having patience! And on October 28, after a sparkling first-quarter report, the stock rose to $50 a share. That means you’d have bagged $840 worth of stock.
So which would you rather own, a well worn handbag, which you might be able to sell on ebay at a fraction of its value, or more than $800 worth of stock that you can sell?
Of course, stocks are never a sure thing. And when you look at a stock, you want to be sure you’re getting a bargain, just the way you would when you’re looking for handbags. So try taking a look at Coach stock by going to the Yahoo Finance site and typing in the stock ticker symbol, which is COH or just click on this link. You’ll see all sorts of information, including what stock analysts think of the stock. Scroll down the left side of the screen and click on Analyst Opinions. Take a look at the numbers, and you’ll see a target price for the stock, which is the price that analysts think the stock will reach within a certain period of time.
And here’s where your eye for trend-spotting comes in. Are your friends buying Coach handbags? How crowded is your local Coach store? My sister tells me that women in her town are knocking each other over to get to the counter when Coach bags go on sale. It might not be too late to bag a few more shares.
So now you can see how easy it is to start stock-watching when you go shopping. And why you might enjoy looking for stock bargains for your portfolio as much as you do finding a fabulous purse that will accent an outfit.
Happy shopping! And remember, this is not a recommendation to buy or sell Coach stock, but rather a sample of trend-watching to get our fellow bargain hunters to think about investing.
October 28, 2010 • Good Company/Bad Company
Getting a Boost to your Bottom Line from a Mouse or an Alien
Is it time to add a mouse, an ugly green giant, some blue aliens, or some comic-book heroes to your portfolio? I’ve always enjoyed the entertainment sector of stocks, and it can be much more fun comparing the pros and cons of Disney versus Dreamworks or Nintendo’s wii versus Sony’s PlayStation than trying to figure out the relative merits of various analog chip makers.
Will Mickey outlast Shrek, now that Disney owns Pixar? Will Avatar beat out Ironman 2 in DVD format? Or in video games?
Over the years, I’ve held stock in a number of entertainment companies that have turned out to be good long-term buys. I held on to them during the recent downturn not only because entertainment stocks fared well during the Great Depression when people needed diversion from their troubles, but also because entertainment has grown global, and certain brands have become household names all around the world. Those are the kinds of stocks I want to keep.
The biggest and most obvious brand name in entertainment, of course, is Disney (DIS). My husband and I were fortunate enough to inherit some Disney shares that had been purchased by his grandmother decades ago. It was my first lesson in the value of stock in a company that people love and have related to for generation after generation.
Dreamworks (DWA) has done its best to become the new Disney, though it remains to be seen if its icons like Shrek become as long lasting in their impact as Disney’s Cinderella, Sleeping Beauty, and more recently, Nemo and Wall-E. By bringing Pixar inside its Magic Kingdom, Disney has maintained its hold on the public’s imagination.
Another possible contender in the world of the imagination is Hasbro (HAS), which spans the world of comic books, movies and toys. Hasbro is harnessing the power of other brands like Marvell with its action figures that are spun off from popular movies like Ironman and Spiderman. Just as important, Hasbro also owns its own long-time classic games like Monopoly, which director Ridley Scott, of Gladiator fame, is now making into a movie.
However, it’s important to note that the stocks in the entertainment sector that have become the best performers have more to do with technology and means of delivery than with actual content. During the downturn, American consumers began to turn to Netflix (NFLX) to deliver their movies to their mailboxes in the form of DVDs. The stock of Netflix has taken off like a rocket. Shares have more than doubled in the last year, going from $45 last May to more than $100 currently.
Another gainer is Coinstar, operator of the Redbox $1-a-day movie-rental dispensers, which recently rose the most in more than a decade after raising its 2010 outlook and reporting quarterly profit that beat analysts’ estimates.
The steadiest performer in the sector over the past couple of years and probably for the near future is a company that pleases the ears rather than the eyes: Dolby Labs (DLB). This company’s cutting-edge technology is a major driver of the audio electronics and entertainment industry. Serious consumers recognize this brand when they see it in conjunction with home entertainment components as well as movie theaters and films. The Dolby label is synonymous with top-end, premium quality and performance. In fact, it’s not only the industry standard. It’s the gold standard. Everyone wants Dolby sound. The company’s most recent report reinforced the evidence of its growing global market.
The fastest growing stock in this sector over the past year, however, is highly visual. It’s so visual that some viewers may get a little queasy at times. Imax Corp (IMAX) has been blossoming along with the popularity of 3D movies. The company has benefited from the growing appetite for such blockbusters as “Avatar” and “Alice in Wonderland.” The price of the stock has tripled over the last year, from $6.48 to currently around $20. In its recent report, its profit was $.53 a share, which beat analysts’ estimates of $.37 a share. Revenue more than doubled, as more theaters showed popular Imax films. The company has also been busy signing deals with movie studios and theaters. It’s an accomplishment that even Ironman might envy.
April 30, 2010 • Good Company/Bad Company
Making the Best of Bad News
There are times when bad news can cause stocks to plummet. But bad news for some stocks may be good news for others. One of our most reliable methods for finding bargain stocks is to assess bad news and try to predict how that news will affect certain companies. We’ve learned over the years that bad news is actually a more reliable indicator than good news in finding stocks with the most upside.
For example, when it became apparent that the swine flu, known as H1N1, was about to become an epidemic, we began to look around for companies that would be affected. We made a list of “flu” stocks that I thought would probably increase in price as a result of the attempts to fight the epidemic. That list included companies that were making preventative vaccines as well as medications like Tamiflu for treatment. It also included companies that made protective masks and flu tests.
A few months into the epidemic, our “flu” stocks were very healthy, including a Chinese vaccine maker named Sinovac (SVA) that increased as much as 850 percent. A small company called Alpha Protec (APT), which makes protective masks, gained 500%.
Similarly, when it became clear that the credit crisis in the U.S. was leading into a recession, we made a list of companies that would probably benefit from the downturn, including discount stores, pawn shops (EZPW), and makers of inexpensive cosmetics like Revlon (REV). We also thought that education would fare well, as those who lost jobs would go back to school to get new training, so we added a private education provider called Apollo Group (APOL).
Our list of downturn stocks on the whole did well, with Revlon as the best performer, going from a low of $3.11 to a high of nearly $20 during 2009.
Bad weather can also be a good stock indicator. Late last summer, when weather forecasters were calling for a snowier winter than usual, the stock that came to mind was Compass Minerals (CMP), which is the leading supplier of salt for the de-icing of roads. The forecasters were correct, and records for snow this past winter were set around the country. The stock has climbed from $50 a share to nearly $80 a share.
A more recent example of the good new/bad news effect is a company named Golfsmith International Holdings, Inc. (GOLF), a specialty retailer of golf equipment, apparel, footwear and accessories. The company’s stock was at a low back in December 2009 when the sport of golf, already suffering from the economic downturn, suffered another setback when Tiger Woods took an indefinite leave of absence from the game after revelations of hanky panky outside the fairways. The sport was hurt severely by the tarnishing of its best player’s reputation.
However, the pendulum always swings, and when Woods returned to participate in a highly competitive and compelling Masters Tournament, won by the crowd favorite, Golfsmith’s stock quickly rose to a high of $5.14 the day after the tournament, making it almost a double in just a few months.
However, a stock obviously needs more than events and headlines to make it a good buy. Golfsmith’s stock has declined since its peak, in part because the numbers in its last report simply weren’t good enough to sustain a high price. It’s important to distinguish between a stock that is a true bargain and one that will inflate on headlines and pop once the numbers come in.
April 23, 2010 • Good Company/Bad Company
Looking for a Super Bowl Stock Boost
We happen to be big New Orleans Saints fans. So after we recovered our voices following the Super Bowl, we started thinking about how many folks we’d seen around the country, and particularly in Louisiana and Mississippi, wearing Saints paraphernalia. So where were these folks buying their souvenir T-shirts and jerseys?
We found an article from a Mississippi newspaper noting that the local Hibbett Sports stores had been mobbed by Saints fans. So that gave us an idea for a stock possibility. We thought the Saints might add a “halo” effect to Hibbett (HIBB) stock.
Hibbett Sports, which specializes in branded merchandise focused on team sports, operates sporting goods stores in small to mid-sized markets predominantly in the Southeast, Southwest, mid-Atlantic and lower Midwest. The company appears to have created a niche market for itself by strategically aligning its merchandise to regional/local sporting and community interests. This may actually gives the company a competitive edge in these markets over larger rivals, such as Dick’s Sporting Goods (DKS) and Big 5 Sporting Goods.
Looking deeper, the company is in the midst of a brisk store expansion program and plans to augment its network by 42 new stores as well as expand 18 to 20 high performing stores during fiscal 2010. Furthermore, Hibbett s management has already identified 350 potential locations for future stores and recently ramped up its distribution center to support over 1,200 stores from 1,000 stores earlier. This provides a strong upside potential to the company.
Hibbett has a healthy debt-free balance sheet with cash and cash equivalents of $24.8 million at the end of fiscal 2010 third quarter coupled with full availability under its $80 million unsecured credit facilities. This offers Hibbett the financial flexibility to drive future top-line expansion. What’s more, the company has a good track record of returning cash to shareholders in the form of regular share buybacks.
UPDATE
As we predicted last month, when we first brought this chain to your attention, Hibbett Sports Inc’s (HIBB) benefited by enthusiasm for the New Orleans Saints. NIBB has reported that fiscal fourth-quarter earnings rose 54% amid rising sales and margins. Results beat analysts’ estimates
Many retailers have been hurt by a cutback in consumer spending, but Hibbett’s sales have remained fairly consistent. On Tuesday, larger competitor Dick’s Sporting Goods Inc. (DKS) swung to a fourth-quarter profit and said its sales jumped by double digits.
Hibbett Chairman Mickey Newsome attributed about a third of a 9.6% rise in same-store sales for the quarter to demand for licensed goods for the University of Alabama and the New Orleans Saints. They won the NCAA football and NFL championships, respectively, this past season. The company had forecast same-store sales between plus or minus 2%.
For the quarter ended Jan. 30, southern U.S.-focused Hibbett reported a profit of $11.8 million, or 40 cents a share, up from $7.6 million, or 26 cents a share, a year earlier. Revenue jumped 13% to $166.8 million.
Analysts polled by Thomson Reuters had most recently forecast earnings of 31 cents on $155 million in revenue.
Gross margin rose to 34% from 32.9%.
Go, Saints!
March 12, 2010 • Good Company/Bad Company
Are Utility Companies Getting Useful?
We didn’t think much of the utilities category when we used to play monopoly. The two holdings that were of the least value on the board were always the utilities - Water Works and Electric Company. This was because you couldn’t build on them, no one ever seemed to land on them, and frankly, they were boring. That’s what utilities tend to be. They’re there when you need them – everyone needs light and water—but they’re easy to overlook, so you take them for granted. But it might be a good time to think about them outside the game board.
Bond fund king Bill Gross and folks like him have been saying that the market’s “new normal” is likely to be a lower-returning world. Diminished growth and deleveraging will lower profits and their distribution to investors in the form of dividends and interest.
So what should the investor in search of decent returns do now, when investment grade bonds are returning a mere .75% on investment? That’s not much better than the mattress. Dividend-paying equities will get you 2% or lower, on the average.
Bill Gross argues convincingly that if companies are moving toward the model of utilities, why suffer the risk of equities with a low 2% return. Why not just buy utilities if you’re looking for dividends with lower risk? Price-wise, they’re only halfway between their 2007 peaks and 2008 lows – 25% off the top, 25% from the bottom. Their growth in earnings should mimic the U.S. economy as they always have, and most importantly, they yield 5-6% not .01% that the bank offers.
What’s more, the smartest sector watchers have been pointing to utitilies as a rising sector.
There are three ETFs (exchange-traded funds) that will get you a nice exposure to utilities.
IDU
iShares Dow Jones U.S. Utilities Sector Index Fund (IDU) seeks investment results that correspond generally to the price and yield performance of the Dow Jones U.S. Utilities Index (the Index). The Index measures the performance of the utilities sector of the United States equity market, and includes companies in industry groups, such as electricity, gas, water and multi-utilities. The Index is a subset of the Dow Jones U.S. Index and is capitalization weighted. Component companies are adjusted for available float and must meet objective criteria for inclusion to the Index. The Index is reconstituted quarterly. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. The Fund’s investment advisor is Barclays Global Fund Advisors.
VPU
Vanguard Utilities ETF (VPU) is an exchange-traded class of shares issued by Vanguard Utilities Index Fund. The Fund tracks the performance of Morgan Stanley Capital International United States Investable Market Utilities Index, an index made up of stocks of large, medium-size and small United States companies in the utilities sector, as classified under the Global Industry Classification Standard (GICS). This GICS sector is made up of those companies considered electric, gas, or water utilities, or companies that operate as independent producers and/or distributors of power. The sector includes both nuclear and non-nuclear facilities. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
XLU
Utilities Select Sector SPDR Fund (XLU) seeks to provide investment results that correspond to the price and yield performance of the Utilities Select Sector of the S&P 500 Index. The Index includes companies from industries, such as electric utilities, multi-utilities, independent power producers and energy traders, and gas utilities. The Fund utilizes a passive or indexing investment approach to attempt to approximate the investment performance of the Index. The Fund’s investment advisor is SSgA Funds Management, Inc.
The Select SPDR (XLU) is the most dollar-liquid utility ETF, and it has just slightly outperformed the other funds. The largest fund is by far the iShares DJ Utility Index tracker (IDU). The Vanguard utility fund, VPU, and IDU have the best Yield minus Expense for those looking for income in their holdings.
All in all, we prefer XLU, though the others are good choices as well.
December 11, 2009 • Good Company/Bad Company
How Much Is a Wrinkle Worth?
A very good friend of ours in her early 80s recently had to use a prescription skin cream to remove some precancerous spots on her face. Her face turned red and blotchy for a week, but after the treatment, not only were the lesions gone; so were some wrinkles. We made a note, wondering if this was the usual result. If so, we thought, here’s an inexpensive and effective wrinkle treatment. And maybe a promising stock. We were right. The stock is now up 50% since we first mentioned Valeant Pharmaceuticals (VRX) back on June 16th.
The company just reported total revenue of $220.3 million in the third quarter of 2009, an increase of 31% over the third quarter of 2008. Product sales in the company’s Specialty Pharmaceuticals segment, which includes Efudex, increased 45% to $101.6 million. And what’s more the company has raised guidance for 2009 to between $2.10 and $2.20, up from prior guidance of $1.90 to $2.10.
According to a study in the June issue of Archives of Dermatology, a skin cream containing fluorouracil, a chemotherapy medicine that treats precancerous skin patches, also reduced sun damage and wrinkles on the faces of 21 people who used the drug. Researchers saw improvements over 24 weeks in dark spots, yellow skin tone and hyperpigmentation, according to the study. The fluorouracil caused the skin to become red and irritated, making it peel as it worked to eliminate unhealthy skin, study authors said.
Doctors use cream with fluorouracil, which is available as a generic and under the brand name Efudex from Valeant Pharmaceuticals International (VRX), to treat skin lesions caused by intense sun exposure. Those spots, called actinic keratoses, are considered to be precancerous. Lead study author Dana Sachs said she’s not sure if fluorouracil would reduce wrinkles in those with healthy skin and a study is needed to answer that question.
“From our study, we can only say that it works for moderate-to-severe sun damage,” said Sachs, an associate professor of dermatology at the University of Michigan in Ann Arbor, in a June 12 telephone interview. That benefit also comes with a drawback.
“You really need to see that inflammation and irritation in the skin in order to see that improvement,” she said. “This is a tough treatment.”
This was the first study to show that fluorouracil cream improves sun-damaged skin, which includes dark spots, hyperpigmentation and sallow complexion as well as wrinkles.
We looked at the fundamentals and valuation of Valeant Pharmaceuticals, and found that it rates about a B. But that doesn’t include any benefits yet from this new study. Analysts give it a price target of $27 a share, although, again, that doesn’t reflect any potential boost from the study. So we wanted to bring it to your attention as a stock worthy of watching.
Study Results
Researchers examined 21 healthy people ages 56 to 85 who had actinic keratoses and sun-damaged skin. The participants applied fluorouracil cream over their entire face twice a day for two weeks.
They were examined for six months after the study started, when researchers found the average number of precancerous skin lesions dropped to 1.5 from 11.6.
Within 10 weeks of starting the cream, 19 of 20 participants said the sun damage to their skin was improved. Also, 16 of 19 said their wrinkles were improved, including 8 who called that benefit “mild.”
Overall 12 of 19 patients reported the treatment was uncomfortable, though 17 said they would be willing to undergo the therapy again, according to the authors.
Sachs said fluorouracil works to reduce the signs of sun damage by increasing the levels of a precursor to collagen, which rebuilds damaged skin. The cream may not be a good choice for everyone.
“For people who are out in the limelight or for professionals, it could be very hard to go to work and attend social functions if you have a lot of redness and scaling. It is a drawback because that lasts for several weeks,” she said.
November 02, 2009 • Good Company/Bad Company
The Flu Factor: A Lesson in Market Dynamics
Things can happen quickly at times in the market. Over the weekend, fears of a flu pandemic incubated, and the result was a drastic drop in some stocks and a quick rise in others when the market opened on Monday.
First of all, because the newly discovered strain of flu was identified as a swine flu, the price of pork and the shares of pork-related companies plummeted. From our point of view, this also brings up an ethical point. Stories have emerged of the poorly run giant hog farms operated by a subsidiary of Smithfield Foods (SFD) in the Mexican state of Veracruz, which some Mexican officials have identified as a possible source of the flu. The origins of the flu strain have not been verified. But the reports of unsanitary conditions surrounding the company’s operations appear to be true. And that means that we would simply not invest in Smithfield Foods. Shares in the company plummeted more than 10 percent.
On the other hand, shares of companies that will benefit from the outbreak have risen. The obvious ones are Roche (RHHBY), the maker of Tamiflu, and GlaxoSmithKline (GSK), which produces Relenza, the other medication used to combat flu symptoms. Basel, Switzerland-based, Roche, which said it has an ample supply of the Tamiflu treatment that can reduce swine flu symptoms, added 3.9 percent in Europe to 145 Swiss francs. Chugai Pharmaceutical Co., the Tokyo-based unit of Roche, surged 14 percent in Asia to 1,845 yen. Roche and Glaxo, not surprisingly, gained as well in the U.S. market.
Similarly, shares of Biota, the small Australian company that holds the patent for Relenza, soared nearly 80% in that market.
Another company, this one based in the U.S., will also benefit, and that’s Gilead (GILD), which holds the patent for Tamiflu and will receive a percentage of Roche’s profits. It’s a much larger and more diversified company than Biota, however, and obviously won’t gain nearly as much. Other companies that will benefit include the makers of surgical masks, which would include 3M (MMM) and Kimberly Clark (KMB). Of these two, Kimberly Clark would be the better choice for investors. The company maintains a Web site for preparedness in case of a pandemic.
Still another beneficiary is Quidel (QDEL), which makes rapid diagnostic kits for the flu.
Life Technologies Corporation (NASDAQ: LIFE) announced that it is providing its technologies to health officials across the globe to aid in the identification of influenza strains, particularly the strain associated with the recent outbreak of the influenza A H1N1 virus, also known as swine flu. The company has formed a special 24-hour-a-day task force across key business units within Life Technologies to coordinate the company-wide response to global requests for assistance with the outbreak. The task force is leading efforts to provide health agencies with front line support such as instrument training, managing the supply chain to ensure that products get to customers as quickly as possible, and ensuring appropriate regulatory compliance. Also, Life Technologies is accelerating the manufacture of components that will be used by laboratories to test for and identify influenza.
More speculative stocks, which have already doubled, include two makers of flu vaccines that are still being tested, Novavax (NVAX) and Biocryst (BCRX). Also speculative is SInovac (SVA), the Chinese vaccine company.
We predict that the stocks that have climbed the highest and fastest will drop the most over the next few days. Chasing hot stocks as they climb on fears is a losing game! But if solid stocks like Gilead and Kimberly Clark pull back a bit, that might present a buying opportunity. Sinovac may also present a good opportunity.
April 27, 2009 • Good Company/Bad Company
Bigger is Not Better: A Look at the Best Performing Stocks
It’s always enlightening to see what kinds of stocks perform best over the long term. It’s usually a surprise to those who don’t keep track. There are no big Blue Chips here, with most actually small caps. The key here is innovation.
So here is a list of the top 10 performing stocks over the past 10 years, courtesy of Motley Fool. It’s interesting to see how many of them are green companies. The top performer is Hansen Natural, the maker of energy drinks, while no. 5 is Green Mountain Coffee Roasters, one of my favorite companies. I usually place several orders with them for Christmas gifts because they emphasize fair market coffee growers and return some of their profits to help farmers and environmental efforts in emerging markets. Number six is Deckers Outdoors, the makers of those popular Uggies (who would have predicted a craze for fuzzy boots?).
You’ll see one of the stocks we mentioned here several months ago, and which we still like, even after a solid gain while other stocks were dropping: Almost Family (AFAM). Sorry we weren’t online ten years ago to recommend the stock then!!!
Company Return, 1999-2008
1.Hansen Natural (Nasdaq: HANS), 4,801% gain
2. Celgene (Nasdaq: CELG), 4,167% gain
3. Quality Systems (QSII), 4,002% gain
4. Clean Harbors, 3,953% gain
5. Green Mountain Coffee Roasters (Nasdaq: GMCR), 3,786% gain
6. Deckers Outdoor (Nasdaq: DECK), 3,374% gain
7. Almost Family (Nasdaq: AFAM), 3,122% gain
8. XTO Energy (NYSE: XTO), 2,992% gain
9. Southwestern Energy (NYSE: SWN), 2,911% gain
10. FTI Consulting, 2,907% gain
December 26, 2008 • Good Company/Bad Company
The Pessimist’s Poorhouse Portfolio
We’ve been hearing some dire predictions for the economy in both the near term and long term. Some are predicting a long, deep recession, while the most pessimistic pundits are even beginning to use the D word: a depression. In any case, there’s not much good news on the horizon, so we’ve decided to put together a portfolio for hard times. We don’t necessarily recommend these stocks, but if we are indeed in the middle of a long trough, there are certain stocks that should survive a long downturn better than others. We’ve included some typical bear market stocks and added others that we think might be new additions to hard-times stocks.
The Education Refuge: During downturns, when jobs are being lost, some job seekers decide to upgrade or retool their skills. There are several purveyors of education that have done well so far during the downturn, but the one that appears strongest to us is Apollo Group (APOL).
Sticking to Soup: A staple of a downturn would seem to be soup, but Campbell’s (CPB) most recent report was poor. We think a better alternative would be Ralcorp (RAH), which turns out even cheaper canned soups and vegetables that are sold under the names of supermarkets, etc.
Divine Discounts: The discount stores are all faring better than upscale and middle-class purveyors like Nordstrom’s and Penney’s. There are four contenders in this category, BJ’s Wholesale Club (BJ), Wal-Mart (WMT), Costco (COST) and Dollar Tree. We simply can’t bring ourselves to choose WalMart, as we think the company has a dreadful record in the way it treats its employees, and we love shopping at Costco. But we think the best bet in this group, based on recent reports, is BJ’s.
Quick Stops: Another category that is doing well during the downturn are the convenience stores, largely because gas has gotten cheap and folks are buying small amounts of food and snacks along with the gas. Pantry (PTRY) has the best balance sheet in this category. We’ve added this one to our Fairest Shares Portfolio.
Still Need Soap: Some pundits are pushing Proctor & Gamble (PG) as a recession-proof stock, since we all want to stay clean, even when we’re sweating the economy, but I like the looks of Church and Dwight (CHD) better. Baking soda, its mainstay, is still really cheap. And another of its products, Trojan condoms, would also seem to be recession-proof.
Lipstick on a Pig: You can’t put lipstick on a pig, making anything pretty out of this downturn. But women are going to keep buying lipstick, and we like Revlon’s cheap prices and the stock’s cheap price. (REV)
Store It: Folks who are losing their homes or having to downsize are stashing their possessions in storage units. These units fill up when homes and apartments go empty. Public Storage (PSA) has just had a recent jump in price, but its fundamentals look strong.
Pawn it: EZCorp (EZPW) has held up well so far, and it will benefit from the pawn shops it bought in Las Vegas, which are undoubtedly seeing a lot of bling these days as the casinos are hurting.
December 01, 2008 • Good Company/Bad Company
Considering Coach: Which is the Better Buy, the Stock or the Purse
We noticed recently that a blogger on the Shine Fashion site was asking about what her fellow Shine shoppers thought of the new fall line of Coach handbags. She particularly liked the new Bleecker Leather Patchwork Tote, which retails for $499, and she was thinking of buying one.
So let’s play the Devil’s advocate, for a minute. (Or should we say Devil-Wears-Prada advocate?) Let’s say that she buys the new Coach bag for $499, instead of saving the money or investing it. It may cheer her up as she carries it to the office. But the thrill of new stuff does seem to wear off fairly soon, at least for some of us, and we start taking those splurges for granted. Just another handbag or snazzy pair of shoes that hurt our feet.
But what if she had decided to invest the money instead, and spend $499 on Coach company stock? The shares of Coach closed at around $29 today (August 28 th ), so she’d be able to buy about 17 shares of Coach for the same price as the handbag.
Let’s look ahead a year from now. The Coach bag is getting a little worn from use (that is, unless it winds up in the back of the closet). But what’s happening to the stock? Let’s say that it rises about 8%, which would be an average gain for a decent Blue Chip stock. So next year, instead of a fairly worn handbag, she’d have $540 worth of stock. And let’s take it ahead to three years in the future, when the stock would be worth $630 if it continued that average 8% gain. And in five years, instead of the Coach bag, she’d have around $734, assuming again that average 8% gain.
Which would you rather own, a 5-year-old handbag, which you might be able to sell on ebay at a fraction of its value, or more than $700 worth of stock that you can sell?
Of course, stocks are never a sure thing. And when you look at a stock, you want to be sure you’re getting a bargain, just the way you would when you’re looking for handbags. So try taking a look at Coach stock by going to the Yahoo Finance site and typing in the stock ticker symbol, which is COH or just click on this link. You’ll see all sorts of information, including what stock analysts think of the stock. Scroll down the left side of the screen and click on Analyst Opinions. Take a look at the numbers, and you’ll see a target price for the stock, which is the price that analysts think the stock will reach within a certain period of time.
As of Aug. 28th, you’ll see that the average target price for Coach is $35, with some target prices even higher. That would make it a 20% markdown at its current price of $29. So you might be looking at a bargain, if you think that Coach is going to continue to grow. And here’s where your eye for trend-spotting comes in. Are your friends buying Coach handbags? How crowded is your local Coach store? My sister tells me that women in her town are knocking each other over to get to the counter when Coach bags go on sale.
So now you can see how easy it is to start stock-watching when you go shopping. And why you might enjoy looking for stock bargains for your portfolio as much as you do finding a fabulous purse that will accent an outfit.
Happy shopping! And remember, this is not a recommendation to buy or sell Coach stock, but rather a sample of trend-watching to get our fellow bargain hunters to think about investing.
August 28, 2008 • Good Company/Bad Company