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4 Valentine's Day Stocks to Watch - 10569 views
BALTIMORE (Stockpickr) -- Valentine’s Day is less than a week away -- but before you scramble to make last-minute plans with your significant other, don’t forget about the market impact that Feb. 14 could have on a handful of stocks.
It might seem strange to think that Valentine’s Day could have an impact on anything other than your romantic life, but the truth is that Valentine’s Day is actually a critical sales day for a handful of industries -- and strong performance in 2011 could be a nice upside catalyst. To be sure, event-driven buying hypotheses rarely hold up to scrutiny -- most traders believe that the implications of key sales days are already priced into shares -- but under certain conditions, there are exceptions to the rule.
That’s especially true with holidays like Valentines Day, where the affected companies are generally beholden to discretionary spending trends. With spending on an uptick, those companies are likely to see a disproportionate benefit from any incremental consumer dollars.
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And when that happens, the potential for earnings surprise (or press releases, or upward earnings guidance, or simply improving sentiment) becomes a reality. That’s when buying Valentine’s stocks holds the key to generating outsized portfolio gains. With those factors in mind, here’s a look at 4 Valentine’s Day stocks to watch this year.
Earlier, I mentioned that Valentine’s Day can be a truly significant earnings contributor for some industries; one of those is the business of flowers. Florists generally see as much as a third of their annual revenues surrounding Valentine’s Day, making it a primary driver of share price for publicly traded flower companies. Two of the most significant are 1-800-Flowers.com (FLWS) and United Online (UNTD).
While the pure-play FLWS offers the most direct exposure to the floral industry right now, the stock’s fundamental performance hasn’t been particularly auspicious over the course of the last several years. United Online, on the other hand, has been making some significant improvements in its operations -- enough to justify a second look right now. Known best for its internet offerings (such as NetZero), United Online also owns a significant online florist business in FTD.com and its UK equivalent, Interflora.
While United Online’s other operations are significant, its floral business is more so. In total, the FTD division (which controls both floral sites) contributes nearly 40% of total income to UNTD, and a full 60% of annual revenues -- a number suggesting that as FTD goes, so goes United Online. While United Online has faced a number of operational challenges, particularly as revenues dried up in 2008, the company’s return to thick profit margins is an attractive sign for current investors.
Tiffany (TIF) has been host to terrific performance in the last year, as shares gained 57% on revenue and earnings growth. And that trend could continue thanks to a major uptick in Valentine’s Day jewelry sales. In total, sales of jewelry are expected to increase by $500 million this Valentine’s Day (a nearly 20% increase over last year’s numbers), according to the National Retail Federation, making the sparkly stuff the biggest single gift item by dollar volume.
For Tiffany, an enviable brand and innovative offerings should help spur major growth this month as consumer become more and more willing to part with cash for premium marques. But Valentine’s Day is only part of the equation for this stock. Right now, burgeoning demand for luxury goods in developing nations looks to be a major point of focus, even in the near-term. And the company’s diverse product range (which spans everything from jewelry to fine china) should see secular growth from the buoyant luxury goods market in 2011 and beyond.
While Tiffany’s is still far from the deep-value buy that it once was, rising tides lift all boats. The trend toward increased luxury spending is worth jumping on right now.
Tiffany shows up in the portfolio of John Rogers at Ariel Capital Management, as of the most recent reporting period, and with a B buy rating, it's one of TheStreet Ratings' top-rated specialty retail stocks.
Despite its product ubiquity on store shelves, Hershey (HSY) is still largely dependent on seasonal sales during candy-crazed holidays such as Halloween, Easter, Christmas and Valentine’s Day. And the company benefits from higher promotional pricing as a result.
That promotional pricing could be critical for Hershey right now. With commodity inputs -- namely cocoa -- undergoing material price increases right now, the company is going to need to continue to pass some of those costs onto consumers in order to avoid painful margin squeezes. Hershey’s leading market share and beloved brand should help shoulder some of the revenue decline that could come as a result of increased pricing -- consumers are relatively brand-loyal in their discretionary purchases.
Even though the Valentine’s season is the smallest of the four events that the company focuses on, it’s nonetheless significant right now. That’s because it’s the first candy holiday for 2011, and a good bellwether for how investors can expect sales to hold up for the rest of the year. Strong sales this month should parlay into increased share prices further out.
To see these stocks in action, check out the Valentine’s Day Stocks 2011 portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.