As the holiday shopping season closely approaches with the economy near or actually beneath its natural rate of unemployment, luxury companies such as the jeweler Tiffany & Co (TIF) start to seem conspicuously enticing. With a strong forecast in terms of holiday sales and a pretty solid economic foundation, you may be surprised to see the best present Santa can give next month: money.
As I mentioned, the unemployment rate, currently at 4.4%, remains at one of the lowest numbers of all time. What that means for shareholders of Tiffany can be examined by the consumers who are obtaining these jobs. As the labor force increases, more consumers are going to be granted employment which will result in a higher overall domestic income for America. Since most Americans utilize a process of a negative savings rate, there is a good chance, relative to most years, consumption of luxury goods such as jewelry will increase in large margins especially during this holiday season. What that means is that margins will dramatically increase in the short run for the next few quarters, and if you are to buy shares of this stock now and sell it before the March earning results poor in, you should see a healthy profit in your portfolio. However, as such an favorable economic foundation remains strong now, because there is still slowing down in many parts of the overall economy, such growth should not sustain all of next year, and it would not be wise to hold on to this company past June 2006.
In relation to other jewelers, Tiffany stands pretty well. In terms of fundamentals, Tiffany has had relatively higher margins on both operating income as well as the top line growth of revenue when compared to rivals Zale and Signet Group. According to Yahoo Finance, the P/E ratio of Tiffany at 21.23 is at a stronger point than either Zale’s at 27.51 or Signet Group at a whopping 48.78. What that means is that relative to its competitors, Tiffany is fairly under priced, and with a good holiday spending season coupled with this undervalued equity, owning shares will absolutely be favorable to the investor. Looking more at a technical side, it is true that Zale, over the past five years, has had a larger increase in terms of share price value, but during the last two years which account for the recent fundamental changes, it has been Tiffany who has overproduced Zale by nearly 60% and has been inline with Signet Group’s production. However, with Signet Group’s overpriced stock juxtaposed to its P/E ratio, Tiffany would definitely be the better buy in this scenario.
Thus with the holiday shopping season approaching rapidly, as an investor, the best gift you may give yourself this year is not a ring from Tiffany, but shares from Tiffany. With a fairly good fundamentals, a strong presence over its competitors, and a favorable economic situation to feed upon, I would not be hesitant to take a short term risk in locating some luck with Tiffany. However, as the economy is always rapidly changing, and as the happy Christmas season turns into a dreaded long winter, I would start to be wary about owning shares of this company past the spring months of 2007.
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