I'm Buying This Stock While the Market Is Selling

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Ever since I read Tom and David Gardner's book Million Dollar Portfolio, I've been interested in Coach (NYSE: COH  ) . Since the concept of the book stemmed from Tom's meeting with CEO Lew Frankfort, it's a company I've kept an eye on for a while now. With the recent earnings release and subsequent sell-off, I am taking advantage and adding shares to my portfolio.

Keep it simple
In line with my investing philosophy, there are four things I look for when considering any investment:

  1. I want management I can trust. They need to be in it to win it, and they need to be honest.
  2. I want something that is understandable and that I can enjoy following.
  3. I want a catalyst -- a short-term event or long-term trend that will help create value.
  4. I want a fair price. Enough said.

Management I can trust, in it to win it
Frankfort has served as chairman and CEO of Coach since 1995 and has been involved with the company for more than 20 years. His track record speaks volumes, and his dedication to the customer is simply phenomenal:

You've got to be more obsessed with researching customers than with generating ideas. To be great for generations, your intuition alone about what customers want today will not suffice. Talk to them every day. Listen to them. Make an eternal effort of gathering and analyzing as much information about them as you can.

Understandable and interested
Coach is retail. Period. The company sells higher-end accessories and apparel for women and men.

A long-term trend

OK, maybe I was a bit blase on what Coach does. It is certainly seen as higher-end retail. And there's no question that higher-end retail is facing some headwinds. Companies like Tiffany (NYSE: TIF  ) and even Saks (NYSE: SKS  ) are seeing lower share prices as consumer spending tightens at home.

One thing to keep in mind, though, is that Coach is an international story. Outstanding performance in Asia and entry into new markets such as Brazil, Kuwait, and even Vietnam give Coach plenty of room to grow even if spending cools off here in the U.S. I also expect to see great things as the company rolls out its new Legacy collection over the coming quarters.

All at a fair price
While Coach's products may be seen as expensive to some, its share price today is anything but when you consider the long-term earnings potential of the company. The recent sell-off has brought shares back down to 15 times current earnings and only 12.5 times fiscal 2013 estimates after downward revisions.

I'm not going to make the argument that Coach is "dirt cheap." I'm sick of the expression and the share price can always (and probably will) go lower. But it is a fair price in my estimation for a superior business that has consistently demanded a higher multiple. You can join me over on my discussion board where I'll dive deeper into the financials and valuation.

Put me in, Coach
Most of the time when management says that the coming year is going to be an "investment year" for the business, the sellers can't get to the exits fast enough. And that's where I come in. The hit Coach is taking today seems overdone when looking at it from a long-term perspective, so it's time to be opportunistic and grab a piece of a company I respect. Make sure to follow me on Twitter to keep up with all of my Motley recommendations.

If retail's your thing, but Coach isn't your bag (pun intended), make sure to check out our special free report on a retailer shaking up commerce outside of the U.S. In a report titled "The Motley Fool's Top Stock for 2012," we explain why one company was hand-picked by our Chief Investment Officer as a long-term winner. Click here to claim your free copy today.

Jason Moser is an analyst with Motley Fool One and Stock Advisor. He doesn't own shares of any companies mentioned, but his wife and daughters love Coach and Tiffany products. The Motley Fool owns shares of Facebook and Tiffany. Motley Fool newsletter services have recommended buying shares of Facebook and Coach. Motley Fool newsletter services have recommended shorting Tiffany. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (5) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 01, 2012, at 6:25 PM, xetn wrote:

    Well, as they say, value is in the eye of the beer holder.

  • Report this Comment On August 02, 2012, at 6:01 PM, mclaugph wrote:

    "The Motley Fool owns shares of Facebook and Tiffany. Motley Fool newsletter services have recommended BUYING shares of Facebook and Coach. Motley Fool newsletter services have recommended SHORTING Tiffany."

  • Report this Comment On August 02, 2012, at 6:02 PM, mclaugph wrote:

    oops, sorry. cut/paste error.

  • Report this Comment On August 10, 2012, at 12:45 AM, cheeees wrote:

    love that disclosure

  • Report this Comment On August 15, 2012, at 11:50 AM, StopPrintinMoney wrote:

    Sheesh, we're facing a recession and here you are promoting the luxury good manufacturer.

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