This
week I’m taking a look at a stock that has grown 20% since early January, but I
think still has a lot of room to grow and is well off its 52-week highs. My stock this week is Tiffany & Co. (TIF). The company is a designer, manufacturer
and retailer of high-end jewelry in the US, Asia, and Europe and to start the
year, had 243 stores up and running.
While most of the luxury retailers (i.e. Coach, Louis Vutton, etc…) have
been rocking of late, Tiffany has been hurt by lower guidance, and down economy. They showed strong holiday sales of 14%
(11% in the US and 23% in Asia), but missed analyst expectations, driving the
stock down 8% (where it has since come back from).
Although
it’s compared to stocks like Coach, they really aren’t direct competitors. TIF should be compared to a company
like Harry Winston, whose sales are less than 30% of Tiffany, and Cartier,
whose sales are mainly made up of watches and is higher end than Tiffany.
Fundamentally, Tiffany is still in
great shape despite a beat-down stock price. They offer a healthy 1.70% dividend while you wait and have
consistently increased their dividend, most recently by 16% in 2011. More importantly, they have a payout
ratio of just 31% giving them even more room to increase their payout. The company is trading at just 17x
forward earnings, compared to Coach, which is trading at almost 25x
earnings. TIF is sporting a low
price-to-earnings growth rate of 1.29 and has a market cap of $8.73B. Tiffany has only $700M in debt to go
along with their $300M in cash, giving them almost $2.50 in cash per
share. Earnings and revenues for
the company have more than doubled in the past 10 years, where analysts are
expecting TIF to earn $3.65/share for FY12 on revenues of $3.64B. Analysts have 10 buys and 12 holds on
the stock, with an average price target of $74 (a nice 10% increase from here),
but I think that’s too low.
Management has also guided to increasing their European exposure by 56%
and US exposure by about 45% over the next five years.
What
makes more bullish on this stock in addition to the strong fundamental story,
is it looks to be breaking out technically. After blowing through the 50 day moving average on February
14, Tiffany has rallied 8% to it’s 200 day moving average ($69.97), where it
closed just $1.20 off of on Friday.
The 50% Fibonacci retracement (see end for explanation) is $69.54, which
is just $0.04 above Friday’s high.
If there’s one thing I’ve learned about how stocks act at Fibonacci
numbers, it’s that they almost never break through on the first attempt. TIF has spent 2 days up against the 50%
level and any boost in the broader market will propel the stock right up
through that level, making it a new floor for the stock to trade against. Additionally, the short-term uptrend line
comes into play at the current floor for the stock of $66.01, which also
happens to be exactly the 38.2% retracement level.
Now,
there are a few ways to play this stock.
If you’re investing for the long term, buy it at the open (15 minutes
into the open- I like to wait until the market settles down to buy) and let it
go. If you’re looking to trade the
stock, wait for a pullback to the $66 level on a drop in the broader market and
then pull the trigger. It’s
important to note that Tiffany does report earnings in a couple weeks on March
20, so if you’re unsure about where enter, wait for the earnings report and buy
on any dip in the stock. Tiffany
has had a habit of missing 4th quarter earnings, but on lower
guidance and lower expectations, I think the company beats. No matter how you play it, I don’t
think you can go wrong! My price
target on the stock is $78, which would give you a roughly 15% gain from
Friday’s close.
Full disclosure: I currently hold no positions in TIF.
Jeff Lewison
Fibonacci
retracements is a method of technical analysis for
determining support and
resistance levels. They are named after their use of the Fibonacci sequence.
Fibonacci retracement is based on the idea that markets will retrace a
predictable portion of a move, after which they will continue to move in the
original direction. The
measurement is created by taking an extreme high (100%) and an extreme low
(0%).
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