By Paul Price
Leather good designer/manufacturer Coach (COH) is one of Market Shadows Virtual Value Portfolio's full [double-buy] positions.
It has done well for us already but still holds promise for larger gains. COH beat estimates in its latest quarter while also raising the dividend by 13%. Coach was underloved until recently while competitor Michael Kors (KORS) was selling for a much higher valuation. What's happened over the past few months shows why we are 'value' investors. Getting more for your investment dollars is like snaring a beautiful high-end accessory at 30% - 50% off MSRP [manufacturer's suggested retail price].
Here is what Barron's had to say ...
By Jack Hough
| SATURDAY, APRIL 27, 2013
The handbag maker's shares are back in fashion, outpacing rival Michael Kors—just as we said they would. Ahead: 40% upside in two years, plus a rising dividend.
At 14 times calendar 2013 earnings forecasts, Coach's stock is now priced on a par with the broad U.S. market. (Kors, a faster grower, goes for 25 times.) But investors shouldn't cash in their chips just yet. A big bet by Coach on new products—especially footwear and watches—shows early signs of paying off.
The shares could rise a smart 25% in two years.
Coach reported Tuesday that sales for the quarter ended March 30 rose 7% year-over-year to $1.19 billion. Absent currency swings, including a steep drop in the Japanese yen, sales would have risen 10%. Earnings per share gained 10%. China remained bright, with sales there soaring 40%. North America, a recent laggard, showed signs of improvement: Same-store sales, a measure of how longstanding stores are doing, increased 1%. That compares with a 2% drop during the prior, holiday quarter.
Barron's also mentioned Molson Coors (TAP), a former Virtual Value Portfolio stock, in a positive way as a 'Follow-Up' column. We bought that one early, took profits higher than the current price, and will continue to monitor TAP for future repurchase if the price declines. Our net realized gain on TAP was 31.7% plus dividends.
From Barron's April 29, 2013 issue...
Molson Coors Brewing (TAP) sells mass-market beer at a time when pricier craft brews are attracting higher-income drinkers and the unemployed are cutting back altogether. Yet the stock is up 20% this year. One reason is that an agreement with Miller to share brewing resources is saving more than $750 million a year, of which Molson Coors gets 42%, according to Morningstar. Management expects free cash flow to total $700 million this year, give or take. That's 7.5% of the company's recent market value, making its 2.5% dividend yield seem not only safe but too slim. Goldman Sachs upgraded the stock to a Buy rating earlier this month, noting that improving employment and new product introductions could drive better than expected earnings, and calling Molson Coors one of the most underloved consumer-staples stocks. Shares go for less than 13 times earnings.