2016年6月26日 星期日

[成功企業策略] [新聞轉貼] ZARA

2016年6月25日 星期六

[書摘] Concentrated Investing (集中式投資) 奉行者: Glenn Greenberg

重點書摘from "Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors" (by Allen Benello, Michael Van Biema, Tobias Carlisle).

Glenn Greenberg有"next to Warren Buffett"這美譽. 他的部分, 大概是全書裡面我最喜歡看的一斷了, 因為Greenberg說了很多他如何選股以及去判斷能不能投資的細節(讀起來很過癮):

  • He (Greenberg) says XX and XX typify his idea of the kind of situation he prefers: a business that's likely to grow and where little can go wrong. "And of course, you've got to watch it carefully, but that's my idea of being a value investor as opposed to the traditional Graham and Dodd thing, which was written in the 1930s.
  • He also reads the annual report and a great many transcripts of quarterly earnings calls and presentations. "I like to read transcripts(季報結果).  I get a good feel for the management and trends in the business by reading a year's worth of transcripts."
  • Greenberg tries to simplify the financials, reports, and presentations down to a thesis. "Is this an advantaged business(公司有沒有優勢)?  How much competition does it have?  Can it raise prices(有沒有定價能力)? And is it priced at a level where you could see making a very attractive rate of return without much risk of loss?  The first thing we decide is whether it's a good business.  And if it's not, we just drop it."
  • 講到如何帶領旗下的team: He will review the team's model, and it will lead to questions that help him understand the business better.  For example, he might ask, "Why did margins hold up so well in 2008?" or, "Why has business slowed down so much?" or, "Why do they get such great returns on capital in this particular business?" He wants his team to think about the core issues of the business, and not get hung up on the detail of the model.  He wants them to understand what factors allow the business to earn high returns and whether these are sustainable in the long term. "It's thinking about the issues and then kind of coming to the right conclusion.  A lot of times it comes down to judgement about people.  Do I believe the people who run this business to be honest and credible? Or do I think they're promotional? Or do I think they're delusional? Or do I think they're trying to raise more money and therefore they want to pump things up?" (管理階層的重要性)
  • After checking out the business, and the people, and calling unbiased sources, in the end it becomes about judgement. "There are positives.  There are negatives.  How do I weigh them? Do I think the negatives hold me back from making the investment? Do I think it's prices so attractively that even if one or two of these negatives come to pass, we'll still do okay? That's where the rubber meets the road. It is the hardest thing.  You can't put it down in a how-to book or on a checklist for someone any more than I could learn to paint like Picasso by attending his lectures or buying a paint-by-numbers instruction book." (衡量公司能不能投資是一門art and science)
  • Greenberg doesn't limit himself to one kind of valuation metric, but he always looks at free cash flow yield. "The absolute best thing would be a business like Freddie Mac where all the money they generate every year was free cash flow but they have an investment opportunity that is very high and certain. The next best is a fine business that is under a cloud that can use its cash flow or borrowing to retire its stock inexpensively.  When business recovers, the stock can really shine with materially lower shares outstanding."
  • Greenberg believes that the use to which a company puts its free cash flow is a crucial consideration. "There is no formula to it.  Part of it is understanding what the business is, part of it is understanding what its opportunities are, and part of it is understanding what the management's likely to do."
  • You have to look at the search business and say, "Do I believe that Google's search business is a business that's a great franchise and one that's likely to be around for a long, long time?  Does it have advantages that Bing doesn't have or Yahoo! doesn't have?"
  • Who doesn't like businesses where there are few competitors and where the business has done brilliantly well, and there's a strong reason to think that it's going to be able to attract more revenues, and where it seems to have an incomparable advantages?
  • "Even if you've done a lot of homework, you know things that can go wrong.....And in the end you're making a bet with a lot of money that you're going to be right, but you know that you may be wrong."

至於關於集中型投資, 這是Greenberg的看法(不過觀念也可以用在其他投資方式):
  • "The trick with a very concentrated position is to buy a business where you can't lose a lot but where you have some idea about why you might make a lot."
  • You feel a lot more confident when you go through a lot of companies and you say, "Boy, this situation really stands out.  It is special.  I really understand why it's well priced.  I understand what's good about it.  I really have a good feeling about the management.  So instead of having a 2 percent position in it, I'm going to have 10 percent of my money in it and I only have to find none others like that." (希望自己以後也能夠有這個判斷出好企業的功力)

2016年6月21日 星期二

[書摘] Concentrated Investing (集中式投資) 奉行者: Lou Simpson and John Maynard Keynes

重點書摘from "Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors" (by Allen Benello, Michael Van Biema, Tobias Carlisle).


Lou Simpson

Lou Simpon是Warren Buffett讚不絕口的一位投資人, 幫Geico Insurance做投資, 績效卓越.
  • Buffett said, "Suppose somebody gives you a card with 20 punches, and each time you make an investment move you have to punch the card.  Once you have had 20 punches, you're going to have to sit forever with what you have." Lou: "....you only have too many shots and you better be confident on the shots that you take."
  • Simpson would take those big bets only when he thought the odds were well in his favor. 
  • Take risks intelligently, when the risk-reward ratio is favorable to us.
  • Simpson's favored metric for valuation is price to free cash flow measured on a per share basis.
  • Lou Simpson agrees with Buffett that the most important thing is to figure out the future economics of the business. This allows an approximate discounted cash flow valuation. 
  • It seems that, like Buffett, Simpson believes that he is a better investor because he is a businessman and a better businessman because he is an investor. 
  • Simpson concluded that one means of outperformance is to hold a concentrated portfolio of securities where an investor has a lot of conviction
  • "We do a lot of thinking and not a lot of acting.  A lot of investors do a lot of acting, and not a lot of thinking."
  • If an investor doesn't do anything stupid, they can come out well ahead. Simpson defines this to mean staying within once's circle of competence.
  • Lou Simpson's investment philosophy: 
    • Think independently
    • Invest in high-return businesses run for the shareholders
    • Pay only a reasonable price, even for an excellent businesses
    • Invest for the long turn
    • Do not diversify excessively

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John Maynard Keynes (約翰. 梅納德. 凱恩斯)

Keynes是位經濟學家, 本來是利用自己擅長的總經知識去投資, 結果效果不彰. 後來改用價值投資&集中投資法, 獲利便有改善.

下面是Keynes對於集中投資以及投資的語錄:
  • "I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.  It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reasons for special confidence."
  • My theory of risk is that it is better to take a substantial holding of what one believes in than scatter holdings in fields where he has not the same assurance. But perhaps that is based on the delusion of possessing a worthwhile opinion on the matter. 
 下面是Keynes的投資哲學:
  • His gains came from taking large positions in those securities that had financial statement sheets he could understand, and sold products or services he believed he could assess objectively. 
  • Keynes relished concentration, focusing as much as half of his portfolio into five holdings. He liked to make colossal, concentrated bets on industries that he thought would appreciate sharply. Keyenes轉換成價值投資者後, 多少還是有用到他在總經方面的專長. 
  • Keynes also focused the portfolio on technology stocks, which on the 1930s meant the automobile and aircraft manufacturing, electricity generation and electrical engineering, and chemicals and pharmaceuticals sectors.
  • Keynes valued.....shares using the earnings yield--the inverse of the more familiar price-to-earnings ratio--and also market capitalization per unit produced. 
  • While Keynes concentrated his portfolios, he did so in ad hoc fashion.......he had little ability to identify stocks that were more mispriced than others, and to capitalize on that intuition by focusing the portfolio on those positions. 這樣看來, Keynes應該沒有運用到Kelly Criterion. 如果他有運用Kelly Criterion, 獲利應該會更大. 
  • Perhaps the most impressive attribute of Keynes was his ability to learn from his own mistakes and adapt his investment philosophy.  
  • Keynes....believed a fully diversified approach was more suitable for investors who did not possess skill in value investing. 
  • He (Keynes) proposed: (1) a careful selection of a few investments (2) a steadfast holding of these in fairly large units through thick and thin, perhaps for several years, until either they have fulfill their promise or it is evident that they were purchased on a mistake (3) a balanced investment position.

這章節裡也提到一個很好的觀點: What, then, is the optimal number of stocks to hold in a portfolio?  The answer depends on the skill of the investor. 

[書摘] Concentrated Investing (集中式投資) 奉行者: Warren Buffett & Charlie Munger

原文出處: "Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors" (by Allen Benello, Michael Van Biema, Tobias Carlisle).

Warren Buffett

這個章節幾乎都是Warren Buffett關於集中式投資的談話內容:

“The evaluation of securities and businesses for investment purposes has always involved a mixture of qualitative and quantitative factors. At the one extreme, the analyst exclusively oriented to qualitative factors would say “Buy the right company (with the right prospects, inherent industry conditions, management, etc.) and the price will take care of itself.” On the other hand, the quantitative spokesman would say “Buy at the right price and the company (and stock) will take care of itself.” As is so often the pleasant result in the securities world, money can be made with either approach. And, of course, any analyst combines the two to some extent - his classification in either school would depend on the relative weight he assigns to the various factors and not to his consideration of one group of factors to the exclusion of the other group. Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess - I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a "high-probability insight". This is what causes the cash register to really sing. However, it is an infrequent occurrence, as insights usually are, and, of course, no insight is required on the quantitative side - the figures should hit you over the head with a baseball bat. So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions.


"I have 2 views on diversification. If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time. That’s what most people should do, buy a cheap index fund and slowly dollar cost average into it. If you try to be just a little bit smart, spending an hour a week investing, you’re liable to be really dumb."

"If it’s your game, diversification doesn’t make sense. It’s crazy to put money into your 20th choice rather than your 1st choice. “Lebron James” analogy. If you have Lebron James on your team, don’t take him out of the game just to make room for someone else. If you have a harem of 40 women, you never really get to know any of them well."

此章節最後一段, 也提到Warren Buffett有使用Kelly Criterion, 但是詳細細節倒是沒有交代Buffett是如何執行的. 也提到了Benjamin Graham, Seth Klarman都是做集中型投資(Graham建議持股10-30隻; Klarman建議10-15隻).

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Charlie Munger

以下是Munger對於集中式投資的看法, 以及他的投資哲學:

  • Munger defines "very few securities" as "no more than three": "My own inquiries on that subject were just to assume that I could find a few things, say three, each which had a substantial statistical expectancy of outperforming average without creating catastrophe. 
  • "How could one man know enough to own a flowing portfolio of 150 securities and always outperform the averages? That would be a considerable stump."
  • It (指See's Candies) taught Munger that some businesses were "worth paying up a bit to get in with for a long-term advantage."
  • Through See's, Munger observed that a high-quality business could provide more margin of safety than a purchase price at a discount from liquidation value. 
  • In seeking his edge, Munger pursued small, unknown stocks that wouldn't be of interest to the biggest investors: "Most of the value investors, if you analyze who've been successful over a long time, have operated in less followed stocks."
  • Like Lou Simpson, Munger likes  "financial cannibals", companies that buy back a lot of stock.
  • "It would not be too much to say it was obvious to me that I could not have a big edge over everybody else and all securities. In other words, it was also obvious to me that if I worked at it, I would find a few things in which I had an unusual degree of competence. It was natural for me to think in terms of opportunity costs. So once I owned three securities-A, B, and C-I wasn't going to buy any other security.  I had actually studied them. 

2016年6月20日 星期一

[書摘] Concentrated Investing (集中式投資)

幾番研究推想後, 決定以這種方式來做投資, 恰好也看到了這本書.  這篇文章的內容是出自"Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors" (by Allen Benello, Michael Van Biema, Tobias Carlisle).

Introduction to concentrated investing

  • Concentrated value investing is a little-known method of portfolio construction used by famous value investors Warren Buffett, Charlie Munger, long-time Berkshire Hathaway lieutenant Lou Simpson, and others.
  • When times are good, portfolio concentration is popular because it magnifies gains; when times are bad, it's often abandoned--after the fact--because it magnifies volatility. 集中式投資的波動大. 在牛市報酬率高, 在熊市報酬率低. 
  • The Holy Grail for any investor is a security with a high probability of winning and also a large potential gain compared to the potential loss.
  • Investors can employ the traditional value investing methodology of fundamental security analysis to identify potential investments with favorable Kelly Formula inputs (a high probability of winning, and a high risk/reward relationship), in order to maximize the chances of significant outperformance, as opposed to significant underperformance, with a concentrated portfolio. 利用Kelly Formula來增加報酬率. 
  • The larger the number (of stocks), the more the benefits of diversification, the lower the volatility of the portfolio, but also, in most cases, the lower the long-term return. 持股數量越多, 報酬率越低.
  • The investors in this book are willing to suffer through periods of temporary (but significant) loss of capital in an attempt to find opportunities where the probability of the permanent loss of capital is small.  In other words, they attempt to find situations that offer a strong margin of safety where one's principal is protected either by assets or by a strong franchise and an unlevered balance sheet. 
 之後文章會摘要幾位concentrated value investors的投資哲學. 

2016年6月15日 星期三

[文章轉貼] Cramer: These Building Block Names Are Flashing Green

非農數字有時候不準.....Cramer建議大家看這些公司的股價, 來判斷美國經濟以及內需狀況. 

Cramer: These Building Block Names Are Flashing Green


When it comes to the overall direction of the market, some stocks matter a heck of a lot more than others. It's just that they often aren't that visible and they aren't talked about versus, say, an Apple (AAPL) or a Netflix (NFLX) or a Tesla (TSLA).
On a day when the market hangs in once again, it's worth the time to shine a light on the stocks I follow in order to give me a better feel for what's really going on out there -- meaning in the real economy, both domestic and international -- so that you have a sense of where we really are.
Let's start with my mainstays: the rails. I am always trying to measure the actual strength of the economy. One way to do it is to look at the rails because there really are only four publicly traded ones of any size -- Union Pacific (UNP), CSX (CSX), Norfolk Southern(NSC) and Kansas City Southern (KSU) -- and they all carry the same cargoes, so we can get some real comparisons. For example, they move chemicals, lumber, steel, iron, cars, oil, coal and agricultural products -- goods that touch pretty much every end of the real manufacturing economy. Don't forget that they carry trucks through their intermodal divisions, so they do ship merchandise that normally would be thought of as over-the-road cargoes.
Now we often talk about the notion that stocks know things ahead of when they happen. My rule of thumb is that stocks often foresee the future by about three or six months.
In that sense, the rail stocks are like crystal balls. And even though many of these cargoes are down and down big -- especially coal -- even as CSX today told a tale of woe about the need to reset expectations lower, the rails are on fire. These stocks not only have bottomed, but they are leading the market!
I candidly admit that I am completely and utterly baffled by this. Nevertheless, it is my job to try to figure out some order to the chaos, so let me give it a try.
First, there's the simple explanation that perhaps the switch away from coal toward natural gas finally has run its course and that cargo, which is down double digits in a single year, has bottomed.
Coal is a big enough difference maker that it could be the case. But I don't see it happening, and nothing in Washington would make me think otherwise.
I think that it's all about pricing, that the rails are getting favorable pricing for their different cargos -- something that CSX confirmed today -- and that can mean only one thing: business is indeed getting better. Not good enough to bring back the furloughed workers and the sidelined locomotives, but good enough to suggest that the long earnings pressure on this group might be over.
Now that doesn't mean they are all uniform. Union Pacific is the leader today, and it has the most diverse cargoes and is less skewed to coal. I would be more concerned, for example, about Norfolk Southern, which is cutting expenses like mad but still may not be able to outrun the coal demons. But this group action is overlooking anything negative, and that's a hugely positive sign for big infrastructure projects and major home and apartment construction as well as industrial and office building creation. You aren't going to get a better sign than that.
The second stock I follow for the pulse is International Paper (IP). Here's a company that's reinventing itself with technology, allowing for all sorts of creativity in the kinds of paper products it offers. Its novel packaging is giving it some extra Street cred as an enterprise that is less tied to rising or following demand for one of the basics of any economy: corrugated boxes.
Nevertheless, International Paper remains a tremendous barometer of commerce and the stock is up 16% for the year. Yet, because it yields 4%, it may have much further to run.
Linerboard, as they call it in the industry, is one of these commodities that goes up in price when there's more shipping to be done and down in price when there is less. It is a pure and simple commodity, and the stock of International Paper predicts that commodity's pricing. When IP goes up, that's an amazing lead indicator of what's to come. The more International Paper goes up, the better you should feel about the U.S. economy as almost 75% of the company's business is domestic. Let's go this far: Despite the anemic employment report we got last Friday, you can't get this rally in IP's stock and believe we are going into a recession or even an economic slowdown.
Next up, Waste Management (WM). CEO David Steiner, a frequent visitor to "Mad Money," has explained over and over again to us that while we think of the company as a curbside garbage disposal company, that's only part of its business and, frankly, not the part that matters. Waste Management is really a gauge of construction, particularly construction of new homes and renovations and teardowns and all signs of residential commerce.
When you get more housing built, you get more stuff that needs to be carted by WM. Well, the stock is up 16% to an all-time high and it's screaming that business nationwide is just plain better. There's no way you can be as concerned about the economy falling off a cliff with Waste Management flying this high. I am sure CEO Steiner himself has to be impressed with how much construction garbage is now fueling his earnings.
Next up? How lucky is this: HD Supply (HDS), which just happened to report today. Its businesses are very strong and they are harbingers of everything you should care about if our economy is growing: facilities maintenance, construction -- both residential and non-residential -- and waterworks. This company has 500,000 clients and every one of its businesses reported strong performance. You can't beat this company as a gauge.
You might think, what do I care about waterworks? The answer: You should care a great deal because HD Supply is the largest distributor of water, sewer and storm equipment -- exactly what you need if you are going to build big housing projects that put a lot of people to work. This company is also the leading supplier of hardware, tools and materials to medium and large contractors. Every line was better than expected.
Again, this is the pulse, the thermometer for the country, and it is flashing 98.6. I like it a heck of a lot more than the non-farm labor report that everyone, like it or not, trades off of, because these guys really know how to keep numbers.
My final bellwether? W.W. Grainger (GWW). You might have seen one in the city where you live. This is the biggest distributor of everything. I can't name them all, but I am talking about abrasives, adhesives, hospitality furniture, food service, heating, ventilation and air conditioning, hand tools, hydraulics, lab supplies, lighting, lubrication, pneumatics, safety, security, plumbing, painting -- oh well, you get the picture. This $14 billion company has a stock that's up 14% and is putting up terrific numbers, dramatically better than expected. Is there a better pastiche if not mosaic of the U.S. economy? Grainger's stock has led down pretty much every rough patch I can recall. And now it is on the move higher.
Now stocks can fib. They can be less than perfect prognosticators. But taken together, Union Pacific, International Paper, Waste Management, HD Supply and Grainger can't help but tell the truth. These building block characters, these stalwarts of the U.S. economy, are flashing green, and there's no way, with the averages challenging and creating the highs for the year, you can feel that the rally is a work of fiction. You may fight it. You may dislike it. But these stocks are saying, "Sure, be critical, run skeptical, but don't sweat the program. Embrace it."

2016年6月7日 星期二

[文章轉貼] 5 Amazon-Proof Retail Stocks From a Top Analyst



Amazon is eating everyone's share now.......every news media is talking about how successful Amazon is--definitely it is one of the red hot stocks nowadays.  Amazon deserves it--it's such an innovative, agile, relevant company.  Long AMZN.   



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5 Amazon-Proof Retail Stocks From a Top Analyst

Oliver Chen of Cowen says a few select companies will thrive despite online competition and picky consumers.

June 7, 2016 7:17 a.m. ET

Oliver Chen was reared on retail.
His family owned a brassware store – The Brass House – in a small town outside Shreveport, La., where the movie Steel Magnolias was filmed, as well as a wholesale business. Chen keeps the family tradition alive as a renowned analyst covering department stores, broad line and specialty stores, and the luxury sector for Cowen & Co., a New York investment bank.
Analysts are often cheerleaders for whatever sector they cover, but Chen, 38, advises investors to reduce their exposure to retail stocks.
Department stores are in a funk. May was a bloodbath for retail following Macy’s (ticker:M) disastrous fiscal first-quarter earnings report. Gap ( GPS ) was downgraded to junk bond status. Teen retailer Aeropostale and Sports Authority declared bankruptcy this year. And CEOs at some of the country’s biggest merchants are pressed to explain why shoppers aren’t spending more in their stores.
Amazon.com ( AMZN ) remains one of the biggest culprits.
In fact, Cowen tech analyst John Blackledge gained considerable attention last month when he predicted that Amazon -- which Cowen rates at Outperform with an $830 price target -- will displace Macy’s as the top apparel merchant in the U.S. by 2017.

Manager’s Bio

Cowen
Name:Oliver Chen
Age:38
Title:Managing director, Cowen & Co. Analyst covering luxury goods and specialty, broad lines and department stores.
Education:B.S. in finance, accounting and international business, Georgetown University; M.B.A. in finance and accounting, Wharton School of the University of Pennsylvania 
Hobbies:Art, design, fashion and group fitness
But Chen argues that a few “Amazon-proof” retailers (he calls them Un-Amazon-able) have built a moat against the online giant by either creating differentiated shopping experiences that lure shoppers into their stores or an emotional component that can’t be recreated online.
As Chen puts it, “You may want to buy a digital camera online, not an engagement ring.”
He favors the off-price retailers TJX Cos. (TJX ) and Ross Stores ( ROST ), select turnaround stories, such as Coach ( COH), and merchants outside the apparel industry, such as Signet Jewelers ( SIG ) and beauty supply chain Sally Beauty (SBH ).
Barrons.com recently caught up with Chen to discuss his outlook for the retail industry, changing consumer trends, and what it would take to make Macy’s stock attractive. Here are excerpts from our conversation.
Barrons.com: Why would anybody want to own a retail stock?
Chen: Retailers have strong cash flow profiles, and the consumer remains a big, important part of the U.S. economy. Brick and mortar stores still matter even with the continued rise in e-commerce, generating the majority of industry revenue. Investors need to look for retailers that are Un-Amazon-able. Certain experiences can’t be duplicated online, such as the thrill of treasure hunting for bargains in an off-price store or learning how to apply cosmetics. There are also emotional experiences, such as buying a diamond ring from Tiffany ( TIF ) or shopping at Victoria’s Secret. And finally, there are some very strong global growth concepts, such as TJX and Costco ( COST ).  Catherine: Marketing/Branding is all about creating a total customer experiences, using five senses. 
Q: And yet you recently recommended that investors reduce their exposure to retail. Why?
A: I wanted to acknowledge that the retail industry is going through a challenging period due to near-term pressures and it is prudent to be cautious. Amazon is stealing mall traffic. Low gas prices were less of a benefit to retail spending than many expected, and the apparel industry is in a recession. There is simply no “must-have” fashion trend. Plagued by bad weather, stores have too much inventory. Anxious over the presidential election, consumers are saving at higher rates and prefer to spend discretionary cash on travel and restaurants. Retailers need to navigate these changes. Still, there are some bright spots. Investors should focus on off-price [stores] such as TJX and Ross Stores and non-apparel retail such as Signet and Sally Beauty, as well as handbags such as Coach and Kate Spade ( KATE ). Depending on your time horizon, this thesis could be more interesting in the back half of the year, given the summer retail lull and the upcoming back-to-school and holiday season.
Q: How long will the environment remain challenging?
A: It is the new reality. Consumers have the ability to find deals like never before. And given the rise of mobile shopping and pure-play Internet retailers like Amazon, people just don’t go to the mall as much. Macy’s and others need to find ways to stimulate traffic with offerings and services that either enrich their customers’ lives, such as cultural events or fashion shows, or make it easier to accomplish various tasks. Restaurants may need to play a bigger role inside the stores.

Buy-Rated Stocks

(as of June 2, 2016)
Target(TGT)
TJX Cos.(TJX)
Nordstrom(JWN)
Ulta Salon Cosmetics & Fragrance(ULTA)
Signet Jewelers(SIG)
Sally Beauty Holdings(SBH)
Hudson’s Bay Co.(HBC.Canada)
Kate Spade(KATE)
American Eagle Outfitters(AEO)
Coach(COH)
Costco(COST)
L Brands(LB)
Lululemon Athletica(LULU)
Ross Stores(ROST)
Planet Fitness(PLNT)
Source: Cowen & Co.
Q: Of the 34 stocks you cover, 14 are rated Outperform, with the rest rated Market Perform. How is it that almost 40% of the stocks in your coverage universe are essentially rated as buys and you have no sell ratings, but you are cautioning investors to lower their exposure?
A: We rate our stocks relative to the rest of the retail space. My caution is in regards to some of the larger trends that could hold back the sector and fears that could hold back valuations. With that being said, I like the stocks I recommend because I have conceptual views of the world of retail. I think you can buy a business model that can compete against Amazon. I like selective turnaround stories, such as Coach. I like quality management teams and business models. And finally, I try to understand how to invest in retail in the context of a rising minimum wage. That’s the framework we use to gauge what we like and how we like it.
Q: What is your top stock pick?
A: I like Signet Jewelers, which is rated Outperform with a $130 price target. [Shares recently traded at $92.] The jewelry business is Un-Amazon-able since consumers usually want personal service when shopping for jewelry. Signet owns an attractive portfolio of brands with Zales, Kay Jewelers, and Jared targeting middle-income consumers. The company has scale and can gain share from both department stores and mom-and pop jewelry stores.
Q: Wall Street sees Signet growing earnings 22% this year. But the company issued cautious guidance last month for the current quarter, predicting 1% to 2% growth in same-store sales and profit falling short of consensus expectations. You recently called it a“must have stock.”
A: I think the numbers are solid in a very challenging environment. This retail category has resilience, and Signet still has synergies from its 2014 acquisition of Zales.
Q: What makes a retailer Un-Amazon-able?
A: A powerful brand, like a Victoria’s Secret or Tiffany, and good customer service. That means a sales staff with expertise that shoppers can trust. Consumers need a reason to go into a store. You may want to buy a digital camera online, not an engagement ring.
QAnother stock pick?
A: I like Sally Beauty, which we rate at Outperform with a $36 price target. [It recently traded at $30.] The beauty supply company operates a string of retail stores here and overseas. The chief executive is engaged in a solid turnaround effort that includes marketing and enhancing stores and products.
Q: Sally Beauty trades at more than 19 times trailing earnings. Is that pricey?
A: The valuation will improve as the same-store sales improve at the company’s namesake Sally Beauty stores. Our price target reflects a multiple of 18 times earnings.
Q: Let’s talk about Coach. Up 10% over the past year, the stock trades at 28 times trailing earnings. Why is this stock a buy with a $46 price target?
A: So far, Coach has been a good call for us, with the shares up 22% since the start of the year as quarterly results have topped estimates. But there is more to come. We are pleased with the progress of its turnaround. The company hired a new designer, Stuart Vevers, in 2013, and he has delivered new product lines with more fashion credibility, more diverse styles and a newness across both the full-price and outlet product lines. It has given us conviction that Coach can return to same-store sales growth.
Q: TJX versus Ross Stores: You rate both at Outperform. Which is the stronger pick?
A: We really like both stocks. Both retailers appeal to today’s shopper, who wants national brands priced at a 30% to 60% discount. Both are good executors with world-class purchasing organizations. Also, the “treasure hunting” consumers do at off-price stores can’t be done online. Ross, however, could have more incremental opportunities to trim inventories. Also, it’s a pure-play domestic opportunity, while TJX also operates stores overseas. So Ross is a bigger beneficiary of a stronger U.S. economy.
Q: Macy’s became the poster child for the retail industry’s dismal first-quarter earnings season. With the stock cut in half over the past year, when does it become cheap enough to be attractive?
A: We will need to see the continued evolution of Macy’s as it embarks on efforts to transform the business and more visibility in regards to improving consumer demand. Macy’s also needs to ensure that it remains relevant to millennials, which means adding things to its department stores that will entice the boy or girl who uses Instagram. It’s about staying young and fresh and generating better traffic. Contrast that with Nordstrom (JWN ), which has great service, an established off-price concept with its Rack stores and an industry-leading online business.
Q: A great deal has been made over the past year about the falling purchasing power of foreign tourists visiting the U.S., and the impact on certain retailers. How long before the tourist is good for Tiffany again? You rate the stock at Market Perform.
A: It could be a while before Tiffany sees strong returns due to a number for factors beyond the company’s control, from weak spending by foreign tourists, Brazil’s recession, the negative wealth effect hitting the U.S. consumer and terrorist attacks in Europe that dampened spending there. Given this landscape, it’s hard to see a catalyst for medium-term improvement at Tiffany.
Q: What is the weakest stock in your coverage universe?
A: We’re worried for Fossil Group ( FOSL ) in the face of falling demand for fashion watches and weaker tourist spending. A lot of the concern has been fueled by rising interest in wearable technology. People appear to have had enough of the fashion watch trend.
Q: Fossil is rated Market Perform, having fallen 61% over the past 12 months. Why isn’t the stock a sell?
A: Fossil has a good supply chain and distribution. It also has a very strong brand portfolio.
Q: Will Gap ever get it right?
A: Gap is an important brand that should stand for classic American cool. Can they get it right? It may take time to improve product assortment, especially at its Old Navy stores. Gap also needs to rethink promotional strategies, speed up its supply chain and embrace their competitive advantages in terms of making sure they use their scale to their advantage.
Q: Thank you.

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