Is the World a Bargain Here?
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You can buy the finest wines, art, and jewelry here. Their buyers traverse the world to find, taste, and appraise some of the luxurious items that would cost much, much more at galleries, auction houses, and tony jewelers. Their head wine buyer, Annette Alvarez-Peters, is one of the most influential names in the wine business worldwide. She travels to Australia, France, California, Italy wherever she thinks she can make a good deal on thousands of bottles of good and great wine. Nice work if you can get it. Its luxury bargains are becoming an open secret. Who is this marvelous merchant of magnificence?
Costco Wholesale (NASDAQ: COST) yes, Costco. CNBC had aired a great show on Costco and I told my daughter when you graduate get a job there; you love traveling, you love wine (after her French semester abroad) and you love bargains. Then just last week Costco ventured back into the fine art biz again after getting burned six years ago over authentication questions over Picasso drawings. This time around, Greg Moors, the San Francisco art dealer that is working with Costco has said that all artwork purchased gets a guarantee of authenticity and mostly living artists will be featured to head off any possible forgeries. As you can see from the link all the listings are already sold out.
How can they keep the prices affordable? They only charge a 14% markup just like any other item in the wholesaler’s inventory, including toilet paper. Average gallery markup on fine art is 60-300%. Average markup on fine jewelry is over 100% and on wine it’s between 30-45% depending on whether it’s a convenience, specialty wine store, or supermarket.
Maybe you’re too young to remember the horror actor Vincent Price hawking his Vincent Price Art Collection for Sears in the sixties until 1971 but you could buy actual works by Dali, Picasso, Goya, Wyeth, and more. For more on Sears and art. I am eagerly anticipating a spoof on Saturday Night Live as Bill Hader does a great Vincent Price, maybe a skit for Halloween in which Vincent Price returns from the crypt to sell more art, but this time for Costco.
Costco was just upgraded on October 15 by BMO Capital to market perform. Its Q4 earnings report on October 10 glittered, mainly due to its 18% increase in membership fees for total revenues of $31.52 billion. And same store sales rose 5% despite the fee hike taking the stock up to a 52 week high of $103.68 with strong volume.
The problem is now that the P/E is 24.81 with only a 1.10% yield. While the merchandise may be a bargain, at these levels Costco probably isn’t. Before I checked the numbers I anticipated the P/Es of Sotheby’s and Tiffany’s to be much higher but provenance and a name you can trust is apparently very important when buying a luxury like fine jewelry or fine art.
Tiffany & Co. (NYSE: TIF) has a lower P/E of 17.94 and a yield of 2.10%. It’s down more than 20% from its high of $80.99. It’s been gradually climbing since its June 27 low of $49.72. Tiffany’s (Audrey Hepburn aside) is a very well known brand and highly valued overseas as an aspirational name. The short interest is decreasing although it’s still a high 8.90%.
Tiffany’s debt is a little troubling but the return on assets is 10.93%. Tiffany’s operates 251 stores, 105 in the Americas with 59 in the Asia-Pacific region, 32 in Europe, and 55 in Japan where it also sells its jewelry in department stores.
As Fool writer Seth Jayson points out Tiffany’s is running through its cash this last year but overall he says the cash flow looks clean.
What about Sotheby’s (NYSE: BID), the fine art and antiquities auction house with its even lower P/E of 13.76 and a 1.10% yield the same as Costco’s? It too, is off around 20% from its 52-week high of $41.24.
Sotheby’s had a very good week recently at its London branch, the annual “Frieze Week,” and set a number of records, especially for living artist Gerhard Richter, actually a record for any living artist. One of three Richter works originally owned by Eric Clapton fetched $34.2 million, a 30 bagger for Clapton and the one that set the record. Overall the Frieze Week auction brought in 44 million British pounds for Sotheby’s, handily beating the Christie’s sale of contemporary art, almost half of Sotheby’s take.
If you do like fine art, even if purchasing such a masterwork being a pipe dream, I would highly recommend learning as much as you can from art magazines before making a bid for BID. It’s a very volatile market with wealthy tastes sometimes being as mercurial as teenage fashions.
Costco may be moving into the rarefied world of connoisseurship, but at a 52 week high last week and these other two both highly regarded names having more upside I’ll let you mull over your decision as you munch some Costco wine and cheese and figure out what those abstract works mean.
Note: For your retro amusement I have a link here to an article about Sears, Vincent Price, and art with some cool retro videos and ads.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale and Tiffany & Co. Motley Fool newsletter services recommend Costco Wholesale and Sotheby's. 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.