Rifling Through Luxury

 | Sep 14, 2012 | 1:00 PM EDT
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Readers who regularly follow my columns know that I don't have any "favorite" sectors when it comes to investment ideas. Instead, I prefer to rely on fundamental and technical scans. But it's also true that certain sectors and sub-industries tend to show up repeatedly as I run screens. For the past few years, various parts of retail and apparel have played leadership roles.

One stock that continues to show up on growth screens is luxury apparel and accessories retailer Michael Kors (KORS). Since going public in December at $20, the stock has advanced 171%, closing Thursday at $54.14.

Kors pulled back earlier this week along with fellow luxury retailers Coach (COH) and, briefly, Tiffany (TIF), after Brean Murray cut Coach's rating. The downgrade was based on valuation, rather than pessimism about the luxury market.

Also sending a chill through the luxury market was Burberry's revenue warning, issued on Tuesday. The U.K.-based company -- a purveyor of products with the well-known camel, red and black pattern -- said same-store sales were flat in the most recent quarter.

But the Fed-driven rally Thursday boosted all the luxury stocks back above short-term moving averages.

From the group of luxury retailers, Kors remains the clear winner. The stock is perched 4.5% below its Sept. 7 all-time high of $56.70. It finished Thursday 0.6% above its five-day exponential moving average. The fundamental case here remains stellar, as well, with analysts eyeing earnings gains of 60% in 2012 and 26% in 2013.

Coach is also showing some fundamental potential. The company's earnings growth accelerated in each of the past five quarters, and annual income is seen growing in each of the next two fiscal years.  

On the technical side, though, the stock needs quite a bit of work to regain its March high of $79.70. Its current pullback may still be under way, as the stock remains mired beneath its 200-day moving average, with that longer-term trendline nestled below the 50-day.

As of now, Coach is nowhere near a technical buy point. The company is due to report its fiscal first quarter next month, so that could be a catalyst for a move up -- or a further decline.

Tiffany, like Coach, is also well off its prior highs. The former growth leader is working on its fourth rally attempt in a year, with the first three having been unsuccessful. The stock is now 21% off its 52-week high.

On a more short-term basis, Tiffany is holding above its key moving averages. As with Coach, the 50-day line is below the 200-day, not the ideal situation for entering a position in this retailer of jewelry, watches and accessories.

On a weekly chart, it appears that Tiffany's 10-week line may be relatively close to crossing above the 40-week. If that bullish crossover occurs, it could offer an entry opportunity.

However, be aware that the company has shown year-over-year income declines in each of the past three quarters, and earnings per share are expected to be flat in fiscal 2013. Though this stock was once a growth leader, those days are in the past. That's not to say it can't be a winner again -- but, for the moment, investors would be better served looking elsewhere.

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