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

By Thursday, February 6, 2014

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.

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.


About the Author | Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »

Sep. 4, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.62%
10-year U.S. Treasury Yield 2.19%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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From: Michael Lombardi, MBA
Subject: Golden Opportunity for Stock Market Investors

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