Jim Cramer Pits Coach Vs. Michael Kors
But ask him to pick a winner, and the answer is a nuanced one.
“I’d say right now, as in today, it’s Coach. But a week or two from now, Kors will most likely be the better opportunity,” he said Friday. “Why? The difference is all about price.”
Kors, Cramer noted, has had a great growth story, as well as a lot more risk.
The lock-up period, during which Kors insiders are prevented from selling their stock, expires June 20. That, Cramer said, spooks investors because it’s possible that insiders will be able to unload shares that are up 88 percent from the initial public offering six months ago.
Insiders own 52 percent of the company, by the way.
“That makes Michael Kors way too dangerous to own right now,” he said. “But it could also create an incredible opportunity to buy this stock at a discount if it sells off over the next week or two.”
Michael Kors reported a a strong quarter Tuesday, a 5-cent earnings beat off a 16-cent basis, with same-store sales rising an astonishing 36.1 percent.
Those numbers boosted the stock 7.6 percent that day, pulling back to the pre-earnings level since then.
“In other words, right now you’re already getting this great quarter for free,” Cramer said. “And if KORS gets hammered next week and the week after as I expect, it would be like they’re paying you to take these incredible results off their hands.”
But Cramer called the stock “untouchable” before the lock-up period expires.
On the other hand, Cramer had plenty of great things to say about Coach.
The company has higher margins than Michael Kors, expansion into new categories including products for men, a strong leader in CEO Lew Frankfort and a 33 percent dividend boost.
In addition, the stock is “darned cheap,” Cramer said, selling for 13 times next year’s earnings – with a 16 percent growth rate.
“If you’re risk averse, then Coach is probably the way to go no matter what,” he said. “But if you’re willing to take a chance to get more upside, Michael Kors is already selling for just 28 times forward earnings with a 28 percent growth rate.”
Most growth-oriented money managers would consider that to be an excellent price, Cramer added.
“Right now, Coach is the better buy, but in a week or two, KORS will be the winner if it gets slammed from the insider selling the way I expect,” he said. “And that just might be your chance.”
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