As lovebirds around the world celebrate Valentine’s Day, investors may want to consider companies that profit from Cupid’s bow and arrows.
According to the National Retail Federation, the average U.S. consumer is expected to spend approximately $175.41 on Valentine’s presents for their significant others, children, teachers and classmates, coworkers, friends and even pets this year. This is up from $164.76 last year. Total spending is projected to reach $23.9 billion, which is an increase from $21.8 billion a year ago.
While candy, greeting cards and flowers remain some of the most popular gifts, the annual survey found those celebrating the holiday plan to spend a record $6.2 billion on jewelry and $4.3 billion on an evening out.
Since jewelry is one of the largest categories of spending for the holiday devoted to love, investors may be interested in finding value opportunities among retail companies that sell luxury goods. According to the GuruFocus Aggregated Portfolio, a Premium feature, as of Feb. 11, consumer cyclical companies that are favored among gurus include Tapestry Inc. (TPR, Financial), Signet Jewelers Ltd. (SIG, Financial), Movado Group Inc. (MOV, Financial), Fossil Group Inc. (FOSL, Financial) and Compagnie Financiere de Richemont SA (XSWX:CFR, Financial).
Tapestry
With a combined equity portfolio weight 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 an $11.18 billion market cap; its shares were trading around $40.55 on Friday with a price-earnings ratio of 13.92, a price-book ratio of 3.54 and a price-sales ratio of 1.9.
The GF Value Line suggests the stock is modestly overvalued currently based on historical ratios, past performance and future earnings projections.
GuruFocus rated Tapestry’s financial strength 5 out of 10. Although it has adequate interest coverage, the Altman Z-Score of 2.74 indicates the company is under some pressure since its assets are building up at a faster rate than revenue is growing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s financial strength fared better with an 8 out of 10 rating, driven by margins and returns on equity, assets and capital that outperform a majority of competitors. While the high Piotroski F-Score of 8 out of 9 suggests operations are healthy, Tapestry has a low predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period
Of the gurus invested in Tapestry, Ray Dalio (Trades, Portfolio) has the largest holding with 0.15% of its outstanding shares. John Rogers (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Richard Snow (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Scott Black (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Jeff Auxier (Trades, Portfolio) also have positions in the stock.
Signet Jewelers
Eight gurus have positions in Signet Jewelers (SIG, Financial), representing a combined weight of 4.25%.
Headquartered in Bermuda, the world’s largest retailer of diamond jewelry, which has several well-known brands under its umbrella, including Kay Jewelers, Zales and Jared The Galleria of Jewelry, has a market cap of $4.4 billion; its shares were trading around $83.41 on Friday with a price-earnings ratio of 7.36, a price-book ratio of 2.88 and a price-sales ratio of 0.69.
According to the GF Value Line, the stock is significantly overvalued currently.
Signet’s financial strength and profitability were both rated 6 out of 10 by GuruFocus. In addition to 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 is occurring.
While its margins are in decline, the company’s returns top a majority of its industry peers. Signet also has a high Piotroski F-Score of 7 and a one-star predictability rank.
With 1% of outstanding shares, Ken Heebner (Trades, Portfolio) is Signet’s largest guru shareholder. Other top guru investors are Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Greenblatt, Chuck Royce (Trades, Portfolio), Ainslie and Barrow, Hanley, Mewhinney & Strauss.
Movado Group
Holding a combined portfolio weight of 0.44%, six gurus have positions in Movado Group (MOV, Financial).
The high-end watchmaker, which is based in Paramus, New Jersey, is known for its signature metallic dot that marks 12 o’clock and minimalist style. The company has an $889.08 million market cap; its shares traded around $38.78 on Friday with a price-earnings ratio of 10.11, a price-book ratio of 1.96 and a price-sales ratio of 1.29.
Based on the GF Value Line, the stock appears to currently be significantly overvalued.
Movado’s financial strength and profitability were both rated 7 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the Altman Z-Score of 4.66 indicates the company is in good standing even though revenue per share has declined over the past three years. Value creation is also occurring since the ROIC exceeds the WACC.
While the company’s operating margin is in decline, it is supported by strong returns that outperform a majority of competitors, a high Piotroski F-Score of 8 and a one-star predictability rank.
Royce is the company’s largest guru shareholder with a 4.39% stake. Mario Gabelli (Trades, Portfolio), Grantham, Murray Stahl (Trades, Portfolio), Simons’ firm and Caxton Associates (Trades, Portfolio) also have positions in Movado.
Fossil Group
Fossil Group (FOSL, Financial) is held by five gurus with a combined equity portfolio weight of 0.24%.
The company headquartered in Richardson, Texas, which is primarily known for its watches but also sells handbags, luggage and accessories, has a market cap of $673.72 million; its shares were trading around $12.92 on Friday with a price-earnings ratio of 430.66, a price-book ratio of 1.52 and a price-sales ratio of 0.38.
The GF Value Line suggests the stock is significantly overvalued currently.
Weighted down by debt and poor interest coverage, Fossil’s financial strength scored a 4 out of 10 rating from GuruFocus. The Altman Z-Score of 2.51 further suggests the company is under some financial pressure as it has recorded a decline in revenue per share over the past five years. In addition, its ROIC is surpassed by its WACC, indicating a struggle with creating value.
The company’s profitability fared a bit better, scoring a 5 out of 10 rating even though it has declining margins and returns that underperform over half of its industry peers. Fossil also has a moderate Piotroski F-Score of 5, meaning operations are typical for a stable company, and a one-star predictability rank.
Of the gurus invested in Fossil, Royce has the largest stake with 2.88% of its outstanding shares. Simons’ firm, Ainslie, Hussman and Paul Tudor Jones (Trades, Portfolio) also own the stock.
Richemont
A total of four gurus have positions in Compagnie Financiere Richemont SA (XSWX:CFR, Financial) with a combined equity portfolio weight of 3.38%.
Through its various subsidiaries, the Swiss company more commonly referred to as Richemont produces and sells jewelry, watches, leather goods, pens, firearms, clothing and accessories. The company has a market cap of 75.97 billion Swiss francs ($82.09 billion); its shares closed at 134.3 francs on Thursday with a price-earnings ratio of 29.46, a price-book ratio of 3.9 and a price-sales ratio of 4.23.
According to the GF Value Line, the stock is significantly overvalued currently.
GuruFocus rated Richemont’s financial strength 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 it is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC outstrips the WACC, so value is being created.
The company’s profitability scored a 7 out of 10 rating. Although margins are in decline, its returns top a majority of competitors. Richemont is also supported by a moderate Piotroski F-Score of 5 while consistent earnings and revenue growth contributed to a 2.5-star predictability rank. GuruFocus data shows companies with this rank return, on average, 7.3% annually.
David Herro (Trades, Portfolio) is Richemont’s largest guru shareholder with 0.16% of its outstanding shares. Other top guru investors are the Causeway International Value (Trades, Portfolio) Fund, Steven Romick (Trades, Portfolio) and the iShares MSCI ACWI ex U.S. ETF (Trades, Portfolio).
Other popular picks
Additional luxury goods companies that are broadly held 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).
