The Motley Fool crew is no ship of fools. We're putting Mom first, and so should you. Check out all of the Fool's Mother's Day articles.
I'm reasonably sure that for this Mother's Day, I'll receive some outstanding works of refrigerator-ready art from my six year old, and possibly some chewed-up crayons from her younger brother. Nothing can beat that, not a dress from Nordstrom, a pot from William-Sonoma, or even brunch at The Cheesecake Factory.
There is one thing that comes close, though, and truth be told, I already purchased it for myself about three and a half weeks ago -- shares of Sotheby's
Apparently, I'm not the only one bidding up shares. The auction house has been on a tear lately, up 68.1% from the end of 2006 and hitting a new 52-week intraday high of $53.25 on Monday after reporting earnings. The company posted its strongest-ever first-quarter results from continuing operations, as total revenues soared 54% from a year ago to $147.4 million.
Driving the revenue growth is a seemingly unlimited supply of money chasing an asset class with traditional snob appeal. Coupled with this is growth among various collecting categories worldwide. Recently, London recorded its best Impressionist, modern art, and contemporary art sales ever, while New York saw historic highs for old master paintings and Asia week sales. Even a tiny Faberge chair just over 2 inches sold last month for $2.3 million, far above its $1 million presale estimate. The second quarter evidences continued strength with solid Russian sales in New York and Asian sales in Hong Kong, and that's before the highly touted Impressionist, modern art, and contemporary art auctions taking place this week and next in New York.
The auction house isn't standing still, either. Operating in 35 countries with principal showrooms in New York and London, Sotheby's plans to open an office in Moscow later this month and work toward establishing a greater presence in the Middle East. Its website is being upgraded with around-the-clock access to online services and account data, and it recently launched a Sotheby's-branded Mastercard.
While visions of masterpieces and capital appreciation for Mom look dazzling, be careful. As much as some may deem art an inflation hedge, the art market can stumble just as real estate has done. In fact, the art market can be particularly frothy, because in the end, paint on canvas, for example, is just that. Its intrinsic value is far more ephemeral and difficult to value than, let's say, that of a corporate office building or a combustion engine.
In times of economic downturn, particularly among the Wall Street crowd, art prices and the attendant fortune of Sotheby's could take a hard landing. Even a publicized hiccup in any sales price of a hyped item in the current auctions can translate to an exaggerated effect on the price action of the shares. Of course, that could mean a buying opportunity. Any investment in Sotheby's should therefore be recognized as a "fun" growth element of risk capital in Mom's portfolio, not a core holding.
That doesn't mean Mom shouldn't be indulged. Like any astute collector, do your own research prior to making a bid on shares so that you don't have the hammer coming down on an overly rich valuation. If the valuation seems too high by your estimates, don't do it. Just take out your ol' doodle pad and scribble away. Trust me, Mom will still be proud.
Related Foolishness:
Fool contributor S.J. Caplan own shares of Sotheby's, but won't be putting any of her kids' priceless drawings on the auction block. The Fool has a disclosure policy.
