Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Stock Falling, but Rich Still Spending; My Top Luxury Stock Play

Thursday, February 6th, 2014
By for Profit Confidential

Why This Luxury Retailer Is Simply the BestThe stock market is in turmoil and looking for help from buyers. While some are calling for investors to run to the exits, I look at weakness and market chaos as a buying opportunity.

It’s simply unrealistic to think that all stocks deserve to fall during a market adjustment like what we are seeing at this time. There are good companies out there that will stage a strong rally when the tide in the stock market turns.

In the retail sector, we saw a gasp of air from troubled J. C. Penney Company, Inc. (NYSE/JCP), as the former retail sector and Wall Street darling struggles to stay afloat. With about $2.0 billion or so of liquidity left, it’s going to be a race against the clock. J. C. Penney reported a 3.1% jump in comparable-store sales during the holiday shopping season, which is a good result for this turnaround play. (I’d rather stick with these two contrarian retail sector plays, though, which you can read about in “These Retail ‘Screw-ups’ Could Turn Things Around This Year.”)

My top luxury play in the retail sector, as many of you know, is Michael Kors Holdings Limited (NYSE/KORS).

In November 2013, I wrote, “The chart of Michael Kors shows the steady upward trend in the stock since the beginning of 2012. There is some congestion and resistance at this time…but we are seeing a bullish ascending triangle and a possible upside breakout on the horizon, based on my technical analysis.” The stock was up 20% Tuesday morning. (Read “My Favorite Pick Among the Luxury Brand Stocks.”)

It’s obvious why Michael Kors is the top retail sector stock, according to my analysis. The seller of high-end handbags, clothing, and accessories is firing on all cylinders against its rivals.

In the fiscal third-quarter earnings season, Michael Kors delivered a massive 57% year-over-year jump in sales to $1.0 billion and destroyed the earnings estimate after reporting earnings of $1.11 per diluted share, a whopping $0.25 above the Thomson Financial consensus estimate. The key comparable-store sales surged 28% year-over-year. Remember J. C. Penney with its three-percent jump? Now you know why Michael Kors is very much the gold standard in the retail sector.

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And unlike rival Coach, Inc. (NYSE/COH), Michael Kors is faring extremely well domestically, with revenues surging 51% in North America, including a 24% jump in comparable-store sales. And in troubled Europe, the company’s products are sizzling hot, with revenue growth of 144% and comparable-store sales growth at a staggering 73% in the third quarter.

Clearly, Michael Kors is king in the retail sector.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles