Question: With all the recession worries, what are the prospects for my shares of Coach Inc.? F.V., via the Internet
Answer: Though nearly one-fourth of the luxury retailer's handbags cost $400 or more, it is prospering in a weak economy.
Masterful at product mix, Coach continues to capture the imagination of women receptive to its brand-name products, whether the trendy handbags go for $200 or $800. It also sells accessories such as wallets and watches and has expanded into jewelry and perfume.
That's why it is good news that the employment contract of Reed Krakoff, the company's executive creative director credited with turning the once-staid company into a trendsetter, recently was extended through June 2014.
Coach shares (COH) are up 9 percent this year following last year's 29 percent decline, caused primarily by bad news about the economy. Fiscal third-quarter sales rose 19 percent on strong North American results.
Coach has 287 stores and 101 factory outlets in North America and also sells products through department stores. It continues to aggressively open new stores here and in Japan, its second-largest sales market after the U.S.
It recently signed a distribution agreement to put its products in 15 Russian locations over the next five years. The brand is also on the rise in emerging markets such as China, which it expects eventually will become its third-largest sales market.
The consensus rating on Coach shares is "buy," according to Thomson Financial, consisting of four "strong buys," seven "buys" and nine "holds."
More women are considering purchases in the premium handbag market, according to the company. It points to a study of 6,000 women it commissioned that found 85 percent of them intend to spend more on handbags even while reducing spending in other areas.
Coach's continued rapid growth is largely dependent on international markets and the ability to keep trendy with innovative products. As the brand becomes increasingly available here and abroad, it also risks losing some of its exclusive image.
The company's initial public offering was in 2000. Lew Frankfort has been the chairman and chief executive since 1995, and Jerry Stritzke, a Victoria's Secret executive, recently was hired to succeed Keith Monda as president and chief operating officer.
Earnings are expected to increase 18 percent in the fiscal year ending in June and 16 percent the following fiscal year. The five-year annualized growth forecast of 18 percent compares with 12 percent for the footwear and accessories industry.
Question: What do you think of Buffalo Science and Technology Fund? B.R., via the Internet
Answer: It differs from many technology funds because it holds a lot of health-care stocks. It also won't pay a high price for its holdings, has low turnover and is less volatile than its peers.
The question then is whether you really need a tech fund, because you probably receive exposure to that category through the broader funds you own.
The $146 million Buffalo Science & Technology Fund (BUFTX) is down 8 percent this year to rank in the top 30 percent of technology funds. Its three-year annualized return of 9 percent places it below the midpoint of its peers.
"Buffalo Science & Technology identifies demographic trends and technological innovations before taking a close look at stock fundamentals and analyzing what it believes the company is worth," said Miriam Sjoblom, analyst with Morningstar Inc. in Chicago. "It has a long-term investment outlook three to five years out, considering what companies will benefit regardless of the economic cycle over that period."
The three-person portfolio management team consists of Clay Brethour, who specializes in medical devices and services; Elizabeth Jones, a former physician who tracks health care; and Dave Carlsen, who has extensive experience in technology investing.
The fund's favorites are firms with strong earnings and cash flow, competitive products and strong balance sheets. It seeks growth at a reasonable price. Although its health-care holdings improve overall results when tech is down, they also hold it back when tech makes explosive gains.
"I recommend this fund, but as a niche fund, since the typical investor doesn't really need a tech fund because they get the exposure elsewhere," Sjoblom said. "If you do have a tech fund, it should be a small part of your portfolio, and you should make sure you have a long time horizon."
Technology hardware and health care each represent about one-third of the fund's portfolio, with software another significant concentration. Largest stock holdings are Jabil Circuit Inc., Pharmaceutical Product Development Inc., Red Hat Inc., Wyeth, MKS Instruments Inc., Mentor Corp., Shire PLC, Qiagen NV, Maxim Integrated Products Inc. and Network Appliance Inc.
This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has an annual expense ratio of 1.03 percent.
Question: I am often confused by the many market capitalization sizes. How are they defined and who determines this? L.C., via the Internet
Answer: There is no particular leader who rules market-capitalization thresholds, which is why you see variations in categories.
With that caveat, however, small cap tends to be defined as market capitalization of $2 billion and below; mid cap, $2 billion to $10 billion; and above that is large cap. You will find others who place the thresholds at lower levels.
Some investors presume that stocks with higher share prices are larger companies, but that is not always the case.
Market capitalization, which is the total dollar value of all of a firm's outstanding shares, is used to determine a company's size. It is calculated by multiplying a firm's shares outstanding by the market price of one share."An index-services provider could define the capitalizations one way and an asset manager another way, so there is no real definition, and it is all open to interpretation," said Sam Stovall, chief investment strategist with Standard & Poor's Corp. in New York. "In addition, market-cap thresholds tend to rise over time because of advancing share prices."
Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, P.O. Box 874702, Tempe, AZ 85287-4702, or by e-mail at [email protected]