Tiffany & Co. is a stock that Buffett would love

By Elizabeth Ody
Kiplinger's Money Power
Published: Sunday, July 6, 2008 12:03 a.m. MDT
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Warren Buffett, of Berkshire Hathaway, hasn't asked for our investing advice. But we think we've found a company he'd like to own: Tiffany.

Buffett likes companies with strong defenses, or "moats," around their businesses. Potential acquisitions must have a track record of generating superior returns on invested cash without taking on a lot of debt. And honest, level-headed leaders are a must because "Berkshire lets its businesses continue in the same successful manner with encouragement, not interference," as Buffett noted at Berkshire's annual shareholder meeting in May.

Buffett already knows a bit about bling: Berkshire Hathaway owns three jewelry businesses, the best-known of which is Borsheims, based in Omaha, Neb.. So adding Tiffany & Co. to Berkshire's roster is hardly a stretch.

Tiffany's branding power is virtually unassailable. The company has been building the brand since its founding in New York City in 1837 — the same year Tiffany introduced the blue box. "When customers buy a diamond ring, they don't really know the stone's value, so it's important that they buy from a trusted provider," says Larry Coats, co-manager of Oak Value fund. "Tiffany is able to charge a premium price for a comparable product because of that."

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The little blue box has exported well. Tiffany, which generates 38 percent of its revenues in 17 foreign lands, added 11 overseas stores in the fiscal year that ended Jan. 31 (it operates 192 stores worldwide). Company spokesman Mark Aaron says Tiffany is on target to add 20 international stores in 2008, including its first shops in Belgium, Ireland and Spain.

At home, the company is balancing its highbrow image with more-affordable products. A new format of smaller "Tiffany Collections" stores will carry only merchandise that sells for $15,000 or less (regular Tiffany stores carry items that cost up to $1 million). The first store will open this October in Glendale, Calif.

Despite weakness in the retailing sector, Tiffany reported a 29-percent boost in earnings, to $2.33 per share, and an 11-percent rise in sales, to $2.9 billion, in the fiscal year that ended Jan. 31. At a recent price of $45, the stock (symbol TIF) trades for nearly 16 times the $2.88 per share that analysts, on average, estimate the company will earn in the current fiscal year.

Elizabeth Ody is a staff writer at Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.

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