If you ask folks who simply focus on short-term stock price appreciation, the market really rocked in the first quarter. But recent tidings imply that many investors have gotten ahead of themselves, and recent disappointing news about jobless claims and other ecoomic data have splashed some cold water on the pricy-stock party. Furthermore, the European situation is by no means fixed -- just shoved to the back burner for now.
Many stocks have been buoyed by general euphoria more than by true growth expectations. Luxury stocks may be among the ones that can't hold up to the reality of economic conditions and subsequent consumer spending power.
Still, economic uncertainty both at home and abroad shouldn't be underestimated for a company that deals in high-end diamonds and precious metals. The fact fact that it owes most of its recent success to more affluent customers still reflects a frugal, picky middle class here in the States. Higher prices for commodities like silver don't do much to help bring a more diversified customer base into Tiffany stores, either.
Tiffany shares have been on a run for the past several months, but buyer beware. Although its forward price-to-earnings ratio of 20 sounds quite reasonable compared with more challenged rivals such as Blue Nile
However, Coach shares are currently flirting with their 52-week high; the stock has been on an incredible run since it cratered last fall. Although Coach shareholders should hold on to their shares of this excellent company, at this juncture, I'd wait for a cheaper price to present itself before buying in. Last year's Coach trough was absolutely a buying opportunity; value-minded investors should keep an eye out for another temporary stumble.
For both Tiffany and Coach, economic uncertainty both at home and abroad is significant. The market's recognition of more negativity than its participants were previously willing to acknowledge could certainly put the brakes on the recent rally. Further, consumer sentiment could quickly sour when economic reality catches up, slowing down both luxury names.
Investors should take advantage of the luxury of time right now and wait for cheaper prices on both Tiffany and Coach. Given the fragility of the recent rally mode, cheaper prices should present themselves.
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Alyce Lomax owns shares of Starbucks. The Motley Fool owns shares of Berkshire Hathaway and Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Coach, Blue Nile, and Berkshire Hathaway, buying puts on Tiffany, writing covered calls on Starbucks, and creating a call spread/risk-reversal position in Blue Nile. The Motley Fool has a disclosure policy. We Fools don't 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.
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