5 luxury stock gurus they love

Summary

  • Tapestry, Signet Jewelers, Movado Group, Fossil Group and Richemont are some of the gurus’ favourites.

As lovebirds around the world celebrate Valentine’s Day, investors may consider companies that profit from Cupid’s bow and arrow.

According to the National Retail Federation, the average American consumer is expected to spend approximately $175.41 on Valentine’s Day gifts for loved ones, children, teachers and classmates, colleagues, friends and even pets this year. That’s up from $164.76 last year. Total spending is expected to reach $23.9 billion, up from $21.8 billion a year ago.

While candy, greeting cards and flowers remain among the most popular gifts, the annual survey found that those celebrating the holiday plan spend a record $6.2 billion on jewelry and $4. 3 billion dollars in the evening.

Since jewelry is one of the biggest spending categories for the love holiday, investors may be interested in finding value opportunities among retail companies that sell luxury goods. According to the GuruFocus aggregate portfolio, a Premium feature, as of February 11, guru-favorite consumer cyclical companies include Tapestry Inc. (TPR, Financial), Signet Jewelers Ltd. (SIG, Financial), Movado Group Inc. (MOV, Financial), Fossil Group Inc. (FOSL, Financial) and Compagnie Financière de Richemont SA (XSWX:CFR, Financial).

Tapestry

With a combined equity portfolio weighting of 3.04%, nine gurus are invested in Tapestry (TPR, Financial).

The New York-based luxury goods retailer, which owns fashion brands like Kate Spade, Coach and Stuart Weitzman, has a market capitalization of $11.18 billion; its shares were trading around $40.55 on Friday with a price-to-earnings ratio of 13.92, a price-to-book ratio of 3.54 and a price-to-sales ratio of 1.9.

The GF value line suggests that the stock is currently slightly overvalued based on historical ratios, past performance and future earnings projections.

GuruFocus rated Tapestry’s financial strength at 5 out of 10. Although it has adequate interest coverage, the Altman Z-Score of 2.74 indicates that the company is under some pressure as its assets s are accumulating at a faster rate than its income. Return on invested capital also eclipses the weighted average cost of capital, meaning that value is created as the business grows.

The company’s financial strength fared better with a score of 8 out of 10, driven by margins and returns on equity, assets and capital that outperform the majority of its competitors. While Piotroski’s high F-Score of 8 out of 9 suggests operations are sound, Tapestry has a low predictability ranking of one out of five stars. According to GuruFocus, companies in this ranking return an average of 1.1% per year over a 10-year period

Among the gurus invested in Tapestry, Ray Dalio (Trades, Portfolio) holds the largest stake with 0.15% of its shares outstanding. John Rogers (Businesses, Portfolio), Robert Olstein (Businesses, Portfolio), Joel Greenblatt (Businesses, Portfolio), Richard Snow (Businesses, Portfolio), Lee Ainslie (Businesses, Portfolio), Scott Black (Businesses, Portfolio), Caxton Associates (Businesses, Portfolio) and Jeff Auxier (Trades, Portfolio) also have positions in the stock.

Bookmark Jewelers

Eight gurus have positions in Signet Jewelers (SIG, Financial), representing a combined weight of 4.25%.

Based in Bermuda, the world’s largest diamond jewelry retailer, which has several well-known brands under its umbrella, including Kay Jewelers, Zales and Jared The Galleria of Jewelry, has a market capitalization of $4.4 billion; its shares were trading around $83.41 on Friday with a price-to-earnings ratio of 7.36, a price-to-book ratio of 2.88 and a price-to-sales ratio of 0.69.

According to the GF Value Line, the stock is currently significantly overvalued.

Signet’s financial strength and profitability were both rated 6 out of 10 by GuruFocus. Along with a comfortable level of interest coverage, the Altman Z-Score of 3.11 indicates the company is in good standing. The ROIC also exceeds the WACC, so value creation occurs.

While its margins are shrinking, the company’s returns are outpacing the majority of its industry peers. Signet also has a high Piotroski F-Score of 7 and a one-star predictability rating.

With 1% shares outstanding, Ken Heebner (Trades, Portfolio) is Signet’s biggest shareholder guru. The other great investor gurus are Jim Simons (Businesses, Portfolio)’ Renaissance Technologies, steven cohen (Businesses, Portfolio), Jeremy Grantham (Businesses, Portfolio), Greenblatt, chuck royce (Trades, Portfolio), Ainslie and Barrow, Hanley, Mewhinney & Strauss.

Movado Group

Holding a combined portfolio weight of 0.44%, six gurus hold positions in the Movado Group (MOV, Financial).

The high-end watchmaker, based in Paramus, New Jersey, is known for its characteristic metallic dot that marks 12 o’clock and its minimalist style. The company has a market capitalization of $889.08 million; its shares traded around $38.78 on Friday with a price-to-earnings ratio of 10.11, a price-to-book ratio of 1.96 and a price-to-sales ratio of 1.29.

Based on the GF value line, the stock currently looks significantly overvalued.

Both Movado’s financial strength and profitability were rated 7 out of 10 by GuruFocus. Along with a comfortable level of interest coverage, the Altman Z-Score of 4.66 indicates the company is in good standing, even though earnings per share have declined over the past three years. Value creation also occurs as the ROIC exceeds the WACC.

While the company’s operating margin is down, it’s backed by strong returns that outperform the majority of its competitors, a high Piotroski F-Score of 8 and a one-star predictability ranking.

Royce is the company’s largest shareholder guru with a 4.39% stake. Mario Gabelli (Businesses, Portfolio), Grantham, Murray Stahl (Businesses, Portfolio), Simons and Caxton Associates (Businesses, Portfolio) also have positions in Movado.

fossil group

Fossil Group (FOSL, Financial) is owned by five gurus with a combined equity portfolio weighting of 0.24%.

The Richardson, Texas-based company, which is primarily known for its watches but also sells handbags, luggage and accessories, has a market capitalization of $673.72 million; its shares were trading around $12.92 on Friday with a price-to-earnings ratio of 430.66, a price-to-book ratio of 1.52 and a price-to-sales ratio of 0.38.

The GF value line suggests that the stock is currently significantly overvalued.

Weighed down by debt and low interest coverage, Fossil’s financial strength earned a 4 out of 10 rating from GuruFocus. The Altman Z-Score of 2.51 further suggests that the company is under some financial pressure as it has seen declining earnings per share over the past five years. Moreover, its ROIC is exceeded by its WACC, indicating a struggle to create value.

The company’s profitability fared somewhat better, scoring a 5 out of 10, even though its margins and returns are down and underperforming more than half of its industry peers. Fossil also has a moderate Piotroski F-Score of 5, meaning operations are typical of a stable company, and a one-star predictability rating.

Of the gurus invested in Fossil, Royce holds the largest stake with 2.88% of its shares outstanding. The Simons, Ainslie, Hussman and Paul TudorJones (Trades, Portfolio) also own the stock.

Richemont

A total of four gurus hold positions in Compagnie Financière Richemont SA (XSWX:CFR, Financial) with a combined equity portfolio weighting of 3.38%.

Through its various subsidiaries, the Swiss company more commonly known as Richemont produces and sells jewellery, watches, leather goods, pens, firearms, clothing and accessories. The company has a market capitalization of 75.97 billion Swiss francs ($82.09 billion); its shares closed at 134.3 francs on Thursday with a price-to-earnings ratio of 29.46, a price-to-pound ratio of 3.9 and a price-to-sales ratio of 4.23.

According to the GF Value Line, the stock is currently significantly overvalued.

GuruFocus rated Richemont’s financial strength at 5 out of 10. Despite issuing new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The robust Altman Z-Score of 3.25 also indicates that it is in good standing, even though assets are accumulating at a faster rate than income is growing. ROIC exceeds WACC, so value is created.

The company’s profitability was rated 7 out of 10. Although margins are down, its returns outpace the majority of its competitors. Richemont is also backed by a moderate Piotroski F-Score of 5, while steady earnings and revenue growth has contributed to a predictability ranking of 2.5 stars. Data from GuruFocus shows that companies with this rank yield, on average, 7.3% per year.

David Herro (Trades, Portfolio) is Richemont’s largest guru shareholder with 0.16% of its shares outstanding. The other great investor gurus are the Pavement International Value (Trades, Portfolio) Funds, Steven Romick (Businesses, Portfolio) and the ETF iShares MSCI ACWI ex US (Jobs, Portfolio).

Other popular choices

Other luxury goods companies widely owned by gurus include LVMH Moet Hennessy Louis Vuitton SE (XPAR: MC, Financial), Kering SA (XPAR: KER, Financial), Brilliant Earth Group Inc. (BRLT, Financial), Pandors AS (OCSE:PNDORA, Financial) and The Swatch Group AG (XSWX:UHR, Financial).

Disclosures

I/we have no positions in the stocks mentioned and I do not expect to initiate any positions in the next 72 hours.

The opinions of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com.

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