“Between 1979 and 2007, the average after-tax income of the richest 1% of Americans rose 281%, from $347,000 to $1.3 million—far surpassing the gains of every other income group. ... Estimates now suggest their net income represents 24% of the U.S. total and put their net worth equal to that of the bottom 90% of the population. Whether this is a fair or unfair falls outside my job as an investor. ... My priority is to profit from trends. And if the rich are getting richer, there has to be a way for me to make money. ...
“There are a number of companies that derive profits from the well-heeled. Polo Ralph Lauren (NYSE: RL) designs and markets upscale clothing, household goods and fragrances. LVMH Moet Hennesy Louis Vuitton sells champagne, spirits and designer fashion. Coach (NYSE: COH) specializes in high-end leather goods.
“Another trend I’ve been following is jewelry sales. On Black Friday—the day after Thanksgiving—jewelry sales were up 22% from a year ago. In fact, jewelry sales accounted for 14.3% of total Black Friday purchases. On November 29, the auction house Christie’s International sold a rare pink diamond for $23.2 million, [making] it the most expensive jewel ever sold in Asia. The auction for the gem was held in Hong Kong. The fact that the gem fetched such a high price in Asia shouldn’t come as a surprise because the same trends for the rich in America are playing out in China. According to a recent report in Forbes, China now has 128 billionaires, up from last year’s count of 79. And the total wealth of the top 400 richest people in China rose to $423 billion, from $314 billion a year earlier. When you couple expanding high incomes around the world with the demand for high-end jewelry, the investment play becomes almost obvious. ...
“Tiffany & Co. (TIF, NYSE) has been catering to the jewelry needs of the wealthy since 1837. In that time, it’s built up a brand name that evokes both high standards and classic elegance. The U.S. adopted Tiffany’s standard of purity for both silver and platinum. Jean Schlumberger joined the company in 1956. His designs were so highly regarded, the Louvre Museum hosted a retrospective of his work. ...
“Tiffany now operates roughly 220 retail stores worldwide. In 2009, approximately 52% of company sales came from the Americas, while Asia-Pacific accounted for 35% and Europe for about 12%. Roughly 9% of Tiffany’s sales are made at its New York flagship store. Asia-Pacific (ex-Japan) is the company’s fastest growing market. In the first half of 2010, net sales in the region grew 35% compared with the first half of 2009. And expansion in the region is key to Tiffany’s growth plan. It already opened three new stores in the region this year—two in China and one in Singapore. The company plans to open three additional stores in Asia-Pacific this year—one in Beijing, one in Taipei and one in Seoul.
“Tiffany reported third-quarter results on November 24, and it only confirmed the building trend in high- end jewelry sales. Company net sales rose 14% worldwide, compared with the third quarter of 2009, while earnings from continuing operations increased by 27%. Sales in Asia-Pacific outpaced the average, growing by 24%. There’s a lot of competition in the jewelry sector at the low and mid-ranges. Every mall seems to have a jewelry store. And there is more competition in the online space, especially for diamonds. For instance, online retailer Blue Nile (Nasdaq: NILE) is small but growing player in this market. But Tiffany’s classic designs, reputation for quality, and loyal high-end customers serve to insulate the company from the competitive churn at the lower end of the sector.
“And for investors that like a little income with their appreciation, Tiffany pays a quarterly dividend of $0.25 per share. While this equates to less than a 2% yield, the company isn’t shy about raising its payout— and has done so twice since December 2009. ...
“Tiffany’s share price moved to the upside following its most recent financial results. But I think this stock has plenty more room to run. Analysts believe the company will grow earnings by an annual average 15.7% in the foreseeable future. I think that is a conservative estimate based on the growing demand of high-end buyers and Tiffany’s savvy expansion plans in Asia. I will be buying 100 shares of TIF.”
Amy Calistri, StreetAuthority Stock of the Month, 12/1/10
