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It’s Valentine’s Day, and love is in the air. I joined CNBC’s Pauline Chiou to chat about stocks to commemorate the occasion.
I’ll start with LVMH Moët Hennessy Louis Vuitton (LVMUY), the world’s largest fashion powerhouse… and also happens to be the maker of fine champagne. So if anything gets Valentine’s Day off to a proper start, it would be a nice bottle of Dom Perignon and a designer purse for that special lady in a guy’s life. On a more serious note, European stocks have mostly traded sideways for years, and LVMH is no exception. This stock is a play on a bounce in the euro, on European stocks in general and on an recovery in China, the world’s largest luxury consumer. This stock is not exactly cheap, trading at about 23 times earnings, but this is also a stock that has traditionally traded at a premium. You’re also getting a healthy 2% dividend while waiting for the recovery to happen.
Next up is L Brands (LB). So, you’ve had a romantic Valentine’s Day evening of wining and dining. What could be better than sexy lingerie to keep the night interesting? This brings us to L Brands, the parent company of Victoria’s Secret. Along with a lot of brick and mortar retailers, L Brands has struggled in recent years as consumers have shifted to cheaper and more convenient internet competition. But Victoria’s Secret is still very much the leader in this space, and the stock today is quite cheap. It trades at 2013 prices and sports a dividend yield over 4%. And unlike a lot of brick-and-mortar retailers, Victoria’s Secret has years of experience in direct-to-consumer catalogue sales. The company’s marketing has gotten somewhat stale, but revenues have grown at a solid clip since the 2008-2009 recession. At current prices, you’re getting paid handsomely to wait for a marketing reboot.
And finally, we get to Pfizer (PFE). You have champagne… you have lingerie… I suppose it’s only appropriate that Viagra comes next. All joking aside, Viagra’s maker, big pharma giant Pfizer, is interesting. The stock has traded sideways for the past three years due to stagnating revenue growth and, like all big pharma companies, faces political pressure to lower drug prices. But given that the stock trades for just 11 times forward earnings and yields 4%, a lot of bad news is already priced in.
Disclosures: As of this writing, I had no position in any stock mentioned in this article.
I joined CNBC for a quick chat Sunday night:
After a initial surge following the election, stocks have traded mostly sideways for the past month. But by most measures, including market breadth, this is a healthy bull market. Valuations are stretched, to be sure. And that will likely keep a lid on stock returns over the next 5 – 10 years. But for the time being, this is a healthy market and, frankly, with bond yields still extremely low by historical standards, there simply aren’t a lot of other places for money to go these days.
So while the initial market love affair with Donald Trump might be over, this bull market likely has higher to go.
I joined CNBC this evening to chat about Starbucks’ (SBUX) fourth quarter earnings.
Overall, this was a very solid quarter for Starbucks, and the most profitable in the company’s history. SBUX beat analyst estimates on both top-line sales and earnings per share. Guidance for next year was a little weaker than expected, but not enough to offset investor enthusiasm for what was a very solid quarter.
Starbucks is still expanding its empire — it opened a location in its 75th country this past quarter and expanded its total store count by about 3% — but what is more important is that same-store sales rebounded. Two quarters ago, Starbucks disappointed on same-store sales, calling them an “anomaly.” So investors were certainly happy to see that this was true. Store traffic was flattish, but the average ticket size was up 4%, far outpacing inflation. A shaky economy hasn’t stopped coffee drinkers from getting their Starbux fix.
Perhaps the most interesting development is the success of Starbucks’ loyalty program, which runs on iPhone and Android smartphones and allows customers to pre-order and skip the line. About 1 in 20 U.S. transactions is now made using the Starbucks smartphone app. That is a major development because it allows Starbucks to make far more efficient use of their staff. More efficient use means less overall demand for labor.
This is the future of food service in general, with minimum wages rising in much of the U.S. The app essentially makes the cashier redundant. Today, you’re skipping the Starbucks cashier. Tomorrow, it will be McDonald’s (MCD)… and then virtually everyone else in food service. So, even if the trend towards higher minimum wages continues, food service companies will defend their margins by making more efficient use of labor… and ultimately hiring a lot fewer people.
This is probably not what the “Fight for $15” crowd had in mind, but I don’t see how another outcome is possible given a general lack of pricing power. In a tepid economy growing at less than 2% per year, companies cannot simply pass on the costs of higher labor to consumers in the form of higher prices.
Uber has disrupted taxis as we know them, and driverless cars are about to do it again. Bots and robos are making financial advisors redundant. And now, the same technological forces are reshaping fast food, with Starbucks leading the way. It’s a brave new world.
Charles Lewis Sizemore, CFA is the principal of Sizemore Capital Management, an investments firm based in Dallas, Texas.
Charles Sizemore is the Chief Investment Officer of Sizemore Capital Management, a registered investment advisor based in Dallas serving individual families and institutions. (Read More)
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