Quality Clothing for Sale
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Being an investor is not always easy. When companies are doing well and everybody likes them, their prices are usually on the rise and valuations can get a little lofty. On the other hand, when prices are getting cheap and stocks look like bargains, that´s usually because there is a reason behind the fall, and most analysts and commentators recommend staying away from the market until things turn for the better.
If you have a long term horizon and a strategic mentality however, some situations can become clear buying opportunities. The markets usually exaggerate their reactions to news, and in some occasions the price movements can become borderline ridiculous from a long term perspective. The intelligent investor knows how to capitalize this opportunities via a rational analysis and a cool head. Patience, of course, is a much needed prerequisite to buy undervalued companies against exaggerated price movements.
The debt problems in the Eurozone seem to be getting back to the front page lately; elections in France, Greece and Germany are generating a lot of uncertainty about the viability of budget cuts in the context of a deepening recession in many countries. Spanish banks are under the spotlight again due to their exposure to toxic real estate assets. Fear is back in the markets.
Investors hate uncertainty, and when risk appetite is on retreat, any bad news can produce some panic selling reactions. Investors in Fossil (NASDAQ: FOSL) understand what I´m saying. The designer and marketer of fashion accessories was falling almost 40% on Tuesday after a disappointing earnings report.
In case you were wondering, there were no accusations of financial fraud and as far as I know the company´s headquarters where not demolished by any earthquake, tsunami or alien invasion. Fossil gave a weak outlook for the rest of the year due to soft demand in the Eurozone, and it looks like mixing Europe and weakness in the same sentence can be a recipe for disaster in our volatile times.
Sure, the company disappointed, but it doesn´t look like the end of the world for them. Fossil lowered its full-year earnings estimate by 10 cents, to between $5.30 and $5.40 a share, but raised its sales guidance to a 16% increase from its February forecast of 15% sales growth. The outlook for this quarter was also below expectation, Fossil expects to earn between $0.77 and $0.79 on a 16% increase in sales, while analysts were expecting guidance of $ 0.94 per share in earnings and a 17% increase in sales.
If I were a long term shareholder in Fossil, I would consider the opportunity to add some shares at discounted prices: a 40% fall sounds like a complete exaggeration considering the news. In fact, other high quality companies were falling deeply Fossil´s problems, and they didn´t even report any figures. The contagion effect seems to be out of control here.
Polo Ralph Lauren Corp (NYSE: RL) was falling by a 7% at midday on Tuesday. Market participants seem to have judged this premium brand as “guilty by association”, because there is no other reason in sight for this reaction. Ralph Lauren is a very strong company with a globally recognized brand that sells high end clothing at very profitable prices.
The company´s products are in strong demand in Asia as well as the emerging markets in general, and this should provide growth opportunities regardless of the situation in Europe. Looking back, Ralph Lauren increased earnings in both 2008 and 2009, years in which the world suffered one of its worst global recessions ever. Back then, shares of this company could be bought at nearly $35 and they made new historical highs above $180 this year. That was a big buying opportunity, and this recent fall may be another one.
Another luxury brand getting hit due to contagion is Coach (NYSE: COH), which saw its shares falling nearly 4% after the news from Fossil hit the markets in a day full of negativity. But this designer of handbags and accessories is performing very strongly as of late, with earnings per share increasing by 24% annually in the last quarter, the company also increased dividends by 33% in the last report, so management doesn´t seem worried at all about growth or profitability in the middle term.
Coach was another buying opportunity during the last recession. Shares fell below the $12 level and are currently near $70. The company saw a modest decrease in sales and earnings during 2009, but nothing too worrisome. Coach has operating margins above 30% and is also expanding rapidly in Asia, this looks like another buying opportunity, especially if prices keep falling.
Companies like Ralph Lauren and Coach have successfully gone through very difficult conditions during the last recession. Their prices are falling now due to exaggerated reactions, news from other companies and fears about the economic scenario. This may be a good time to shop for some quality fashion at a nice discount.
acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of Fossil. Motley Fool newsletter services recommend Coach and Fossil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.