A Bet on Luxury Retail Star

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
Last week was another quiet one for global stock markets. The Dow Jones was down 0.51% and the S&P 500 dropped 0.32%. The MCSI Emerging Markets Index dropped 1.92%.
 
In contrast, your Bull Market Alert portfolio generated gains nearly across the board. Your biggest gainers included 3D Systems Corp. (DDD), which soared 8.19%. Your bet on the U.S. real estate investment trust (REIT) sector, American Capital Agency Corp. (AGNC), jumped 1.96%.
 
This week’s Bull Market Alert recommendation takes us into the world of high-end retail through Michael Kors Holdings (KORS).
 
Founded in 1981 and headquartered in Tsim Sha Tsui, Hong Kong, Michael Kors is best known for its luxury women’s handbags. Michael Kors also sells other branded women’s apparel and accessories, as well as men’s apparel, footwear, watches, jewelry, and a full line of fragrance products. Today, the company operates a total of 321 stores worldwide. And that number is set to double within the next 12 months.
 
Despite its Hong Kong roots, North America contributes 91% of net revenue and is the company’s primary area of focus. Michael Kors’ home base of Asia is more about the future. Luxury-brand obsessed Japan generates less than 1% of the company’s revenue — though this is growing at an eye-popping 190% quarter-over-quarter rate. Michael Kors still is in its very early days in China, where the company only has seven retail stores.
 
Michael’s Kors’ financial performance has been on fire. On Aug. 14, Michael Kors announced fiscal 2013 first-quarter earnings per share of 34 cents. That was not only reflected in an annual growth rate of 161.5%, but also beat consensus estimates by a whopping 14 cents. Total revenue jumped 71% year-over-year to $414.9 million — also beating the consensus estimate of $368 million. 
 
I also like the fact that both the company’s gross and operating margins are expanding at a rapid rate. The company’s trailing 12-month Return on Equity (ROE) is 33.0%. That compares against 20.6% for its peer group — a massive outperformance.
 
From an investment perspective, Michael Kors is a classic growth stock. It boasts huge earnings growth, lots of positive price momentum, as well as a hefty valuation. Trading at a forward price-to-earnings (P/E) ratio of 31.5x, the stock is hardly cheap. And the stock is hovering at a 52-week high. Yet, given the company’s compelling fundamentals, combined with its strong momentum, there is both solid short- and long-term upside in this stock.
 
So, buy Michael Kors Holdings (KORS) at market today and place your stop at $45.00. If you want to play the options, I recommend the February 2013 $55 call options (KORS130216C00055000).

Portfolio Update

Bank of Ireland (IRE) added 0.19% last week. IRE closed out last week by taking a convincing bounce off of its mighty $5.00 support level. IRE is the only position listed as a HOLD in your portfolio this week.
 
National Bank of Greece SA (NBG) closed the week up 0.59%. Both of your euro-zone positions, NBG and IRE, may be subject to comments from European Central Bank President Mario Draghi this week. Draghi will give markets more insight Thursday on the plan to help Spain and Italy with their economic troubles. Expect some volatility to follow. NBG is a BUY.
 
Novo Nordisk A/S (NVO) gained 0.47%. NVO’s product “insulin degludec,” a once-daily, ultra-long lasting basal insulin analogue, passed a major approval-for-use milestone in Japan last Friday. This approval is a big step in the process of bringing this product to millions of Japanese diabetes patients. NVO is a BUY.
 
3D Systems Corp. (DDD) launched 8.19% over the past five trading days. Once again, DDD took another significant bounce upon touching its 20-day moving average. 3D Systems released yet another new product announcement Monday, bringing Cubify® Bracelets to market. This application allows the home 3D bracelet-maker to produce bracelets in three sizes, 16 styles, and a multitude of colors. DDD is a BUY.
 
Standard Pacific Corp. (SPF) rose 0.60%. Standard Pacific acquired huge amounts of land at rock-bottom prices during the housing crisis. As the housing market begins its turnaround, SPF finds itself extremely well positioned to turn all that cheaply acquired land into significant profits. SPF is a BUY.
 
Ross Stores Inc. (ROST) was the only position in your portfolio to dip last week, losing just 1.00%. ROST paid you a $0.14 dividend last Wednesday. Ross Stores Inc. reported Thursday that its sales increased by a whopping 13% to $747 million, for the four weeks ending Aug. 25. This was well ahead of expectations and attributable to strong back-to-school sales. ROST is a BUY.
 
ProShares Ultra Nasdaq Biotechnology (BIB) rose 0.19%. Biotechnology is still a winner as the NASDAQ reported Friday that half of its top-ten biggest percentage gainers last week were biotechnology companies. BIB is a BUY.
 
American Capital Agency Corp. (AGNC) showed some real signs of life last week, adding 1.96%. AGNC made a concerted move upwards last week, from its 50-day moving average, and appears poised to continue higher. AGNC is a BUY.
 
Seadrill Limited (SDRL) gained 0.22%. Credit Suisse initiated coverage on Seadrill last week and set a price target at $57.00. This is an eye-popping 38.25% above last Friday’s closing price! SDRL is a BUY.
 

 

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