Low Stock Prices in U.S. Luxury Goods Segment Could Attract International Buyers: Foreign Luxury Goods Owners Have Longer Time Horizons for Investing and See Takeover Opportunities in the U.S.
67 WALL STREET, New York - March 20, 2013 - The Wall Street Transcript has just published its Investing Strategies Report. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Long-Term Investing - Value Investing - Longer-Term Investing - Bottom-up Investing - Global Investing - High Quality Companies - Investment Strategies -
Companies include: US Airways Group, Inc. (LCC), Alaska Air Group Inc. (ALK), Tiffany & Co. (TIF), Coach Inc. (COH) and many more.
In the following excerpt from the Investing Strategies Report, an expert portfolio manager discusses his portfolio-construction strategy and investment philosophy:
TWST: What is another trend or industry you are watching?
Mr. Barnett: An entire industry right now, somewhat out of favor and possibly is in need of consolidation, is the luxury goods industry. The specific companies we're looking at there are Tiffany (TIF) and Coach (COH). Both companies have come under some pressure due to lower-than-expected revenue numbers. However, the profit margin, the return on capital, is quite high.
In the case of Coach, the return on assets is rivaled only by the pharmaceutical industry, so that company is quite profitable. There is talk that several international luxury good firms such as MHLV, Moet Hennessy Louis Vuitton (MC.PA) would be interested in acquiring these companies. Certainty there are foreign buyers in China and elsewhere who would find the companies attractive.
In other countries, the owner of luxury goods tend to have longer time horizons for investing than Americans do. When the stocks get down, they see this as an opportunity. I don't see the Coach or the Tiffany franchise as being damaged beyond repair, so if you look at the lower stock price as simply a cyclical situation or temporary, then it represents a great buying opportunity and perhaps takeover opportunity.
TWST: You mentioned inflation earlier. Two themes many are talking about are the likelihood of inflation in the near future and higher interest rates. Are those of concern to you, and how are they going to impact your investing?
Mr. Barnett: Inflation is something that will happen, but it's not going to happen without demand. We're having more inflation in the stock market than we are in the real market right now. The potential is there, but in the absence of demand you can...
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