Money Morning Article of the Week
by Nancy Zambell
While the global economy is taking longer than we’d like to land a full recovery, there are retail stocks to buy right now to benefit from better times ahead.
And now – since the stock market is always anticipatory – we’re seeing some interesting opportunities in the luxury goods sector.
Not since the era of nighttime soaps Dynasty and Falcon Crest have we seen such demand for luxury goods. And that shopping trend already is paying dividends to investors holding luxury retail stocks.
The Dow Jones Luxury Index has risen 18% year to date. That’s just shy of the broader market, with the Dow up 18% and the S&P 500 up 19%.
Though luxury shares have been choppy for the last few months, a confluence of factors will soon start luxury stocks higher. Investors just need to know the right retail stocks to buy now…
Retail Stocks: M&A and IPOs Unlock Profits in 2013
The market’s climb this year has given birth to a flurry of mergers and acquisitions of luxury goods retailers, including the latest rumor – the $6 billion purchase of Neiman Marcus by Ares Management and a Canadian pension plan. Neiman is currently owned by Warburg Pincus and TPG Capital, who actually filed to take the company public last spring.
During the summer, Canada’s Hudson’s Bay Company (TSE: HBC), which owns department stores Lord & Taylor and Hudson’s Bay, announced an all-cash $2.4 billion agreement to buy Saks Inc. (NYSE: SKA). The deal immediately sent Saks’ shares up 4.18%.
French luxury conglomerate Kering (EPA: KER) – designer of Alexander McQueen, Gucci, and Balenciaga brands – recently reported that it has bought a minority share in Altuzarra, the label by French-American designer Joseph Altuzarra.
And just last week, Italian luxury-goods designer Gianni Versace SpA announced plans for a private sale of a minority stake in the company – a prelude to a possible initial public offering in three to five years.
Rumors are also swirling – although denied by the company – that Salvatore Ferragamo SpA (BIT: SFER) may be a buyout target.
This urge to merge and to go public is driven by three primary catalysts…
Rising consumer confidence: It rose to 81.5 as of July.
Strengthening U.S. economy: The Gross Domestic Product (GDP) growth rate improved to 2.5% in August.
- Emerging market resurgence: The HSBC Emerging Markets Index rose to 50.7 from 49.5 in July, reinforcing the signs of recovery. It is estimated that this area of the world will account for some 70% of world growth in the next few years – with 40% originating from China and India.
The luxury segment is tracking a 20% to 30% annual growth rate in these countries. And the BRIC countries alone (Brazil, Russia, India, and China) are forecast to command 36% of the global luxury market share by 2015.
And that economic growth will translate into a virtuous cycle – earning power that will lead to more disposable income and higher spending on nondiscretionary items such as luxury goods.
Retail Stocks to Buy Now: A “Timely” Prospect
While there will doubtless be many retail stocks to buy now based on these catalysts, one company really stands out – Movado Group Inc. (NYSE: MOV).
Movado has created brand-name cache, has a stronghold on its markets, and shows signs crucial to shareholder success:
- Rising sales and earnings
- Beating earnings estimates
- Analysts’ increasing their earnings estimates
- Rising momentum in share price
Movado just reported a 38% earnings increase in its second quarter, while sales rose 17% – very healthy numbers. The company also increased its forecast for 2013 profits to $1.90 a share from $1.80 a share and sales to between $575 million and $580 million from its previous estimate of $570 million to $575 million.
And Movado forecast longer-term growth targets: annual increases of 10% for sales and 20% for operating income over the next four years.
This growth is coming from a shift to the higher-margin wholesale business, as well as new and improved product lines, including the Ferrari and Coach brands, and of course its rising fortunes in the vital and growing Chinese market.
Movado also increased its quarterly dividend payment by 60% to eight cents a share, for a new yield of 0.8% – a nice little bonus to its share appreciation.
Shares of Movado are currently trading at around $41.80 per share. They can easily reach $50, and maybe $55 in the not-too-distant future. But please make sure you buy wisely, keep your portfolio diversification in mind, and set a trailing stop-loss at 30%. Then sit back and watch your portfolio grow.
For a roundup of Money Morning’s favorite stocks to buy now, go here.
Nancy Zambell owns no shares in any of the companies listed.
- Money Morning:
Three Retail Stocks to Buy Now with “Sizzling” Sales in 2013
- Money Morning:
Who Will Be the Next J.C. Penney (NYSE: JCP)?
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