Instead of looking to “beat the market” on the upside and hope for the best on the downside, my strategy is to avoid losing money. That's why I've been cautious for quite some time now.
While my caution is most likely well-warranted in this market, let’s not lose sight of the fact that the market trendline is ever upward. Based upon the state of the economy and the corporate earnings trend thus far this year, I would expect any pullback to be short in duration. I can hazard a guess — and it is just that. It may be based upon extensive research, long experience, and deep reflection, but no one knows what exogenous event may occur, positive or negative, tomorrow, next week or next year!
My best guess is that we end 2014 right around where we are now and we end 2015 around 2150 on the S&P 500, which would be up 7-8% from where we are today. My hope is that we get the *^$@$* correction over with quickly. I’d feel better about the future of the market if we have a (long-overdue) correction, then recover on our way to finish at 2000 or higher in 2014.
If we simply hold this area or advance slightly on the low volume we’ve seen lately for the remaining four months of the year, 2015 is likely to be a lot rougher.
Aggressive Stock Ideas
At some point, I imagine the makers of luxury goods will enjoy a rebound based upon their sales in China and other Asian markets. Status is important there and external symbols of success go a long way. Companies like Coach (NYSE:COH) Richemont (OTC:CFRHF) LVMH (Moet Hennessy Louis Vuitton—(OTC:LVMHF), Pernod Ricard (OTC:PDRDY), Hermes (OTC:HESAY) or Prada (OTC:PRDSY) are all high end firms. (I once made the mistake of saying to a fashion snob these sorts of brands sold “overpriced” merchandise and received a 5-minute lecture on quality versus mere utility. I guess you have to be born a believer…)
There have been concerns recently about the Chinese elites making a show of stopping the escalation of extravagant gift-giving. My guess is this campaign will last a few months until no one is looking, then resume with a vengeance.
We need to remember, these sorts of companies have slightly higher costs for materials, labor and marketing, but remarkably higher prices on their goods. Many of these firms have been around since the 1800s and are still going strong, selling status to the idle rich and the idle wannabe. Plus, their penetration in Asia is still rather low compared to their other markets.
None of these firms have participated in the rally of the past couple years; most are still selling within a couple points of where they were a year ago. Richemont, LVMH, Hermes, and Pernod Ricard are all in this boat. On the other hand, Kate Spade (NYSE:KATE), Nordstrom (NYSE:JWN), and Tiffany (NYSE:TIF) have all advanced a bit.
However, both Coach and Prada have fallen on harder times, with Coach selling just a hair off its low for the year, down 31% for the past 12 months, and down 50% from its high back in 2012. Prada just bounced a few cents off its low for the year and is selling at a price not seen since August of 2012. Are these two companies past their prime? Are they no longer au courant in the fickle fashion world?
I imagine not. Especially Coach. Coach has brought on Briton Stuart Vevers as Executive Creative Director. He comes from stints at
Calvin Klein, Bottega Veneta, Givenchy, Louis Vuitton, and Mulberry, where he did wonders with their handbag business. Coach has withstood assaults from Michael Kors (NYSE:KORS), Kate Spade and other competitors who were supposed to eat their lunch. They’re still standing and have embarked on an aggressive plan to reduce their exposure to the outlet market and re-establish their position
as an elite luxury brand.
That isn’t where the volume is but it’s definitely where the margins are. And, of course, their penetration in Asia is just at its beginning
stages, particularly in China. I think they are on the right track. You may expect to see COH again in these pages if I’m correct.