Saint Valentine’s Day has had a mixed legacy ever since Pope Gelasius I established it in 496 AD. On Valentine’s Day, some find true love, while others get their hearts broken. For investors, this year is no exception.
Although the National Retail Federation (NRF) is forecasting that Americans will spend, on average, a record $126.03 per person in hopes of proving that money can sometimes buy happiness, times are tough in the $17 billion Valentine’s Day industry. Rising commodity prices will hurt candy makers and diamond retailers, and massive players such as Amazon.com (NASDAQ:AMZN) are squeezing florists such as 1-800 Flowers.com Inc. (NASDAQ:FLWS). Still, while these companies face huge challenges, some offer potential for huge profits.
The holiday is big business. In terms of card-giving, it ranks second only to Christmas, according to Hallmark Cards Inc., which estimates that 144 million Valentine’s Day cards are exchanged. The holiday also is important for candy makers, jewelers and florists. More than half of all celebrants will buy candy. According to the NRF, more than 8 out of 10 consumers will buy jewelry (18.9%), up from 17.3% a year earlier. Spending on flowers also is on the rise, says the NRF, with 36% of Americans planning to buy flowers for their sweethearts. An informal survey by the Society of American Florists estimates that a dozen professionally arranged roses will cost $79.11, up from $75.62 a year earlier, according to spokeswoman Jenny Scala.
While absence makes the heart grow fonder, so does an improving economy. Unemployment in January was 8.3%, its lowest level sine 2009. Consumer confidence that month hit its highest level since May 2011. Although the public may be feeling more romantic, the bloom is off some Valentine’s Day stocks, while others may still smell sweet to investors.
Shares of Zale Corp. (NYSE:ZLC), a jewelry retailer with more than 750 locations, are down more than 43%, while online jeweler Blue Nile Inc. (NASDAQ:NILE) is off nearly 30%. Zale has lost money in four out of the last five quarters, and though its last quarterly results were better than expected, its struggles are far from over. Meanwhile, Blue Nile is still reeling from the abrupt departure in November of CEO Diane Irvine.
Wall Street expects better times ahead for Zale even though experts are forecasting that diamond prices will rise at a faster rate than gold over the next four years. The average one-year target for the Texas company is $6.75, more than 130% over where it currently trades. Zale reports its latest results Feb. 22.
Analysts are more pessimistic about Blue Nile, which issues results Feb. 15. Its average one-year target is $36, below where it recently traded. Blue Nile trades at a multiple of 46.45, well above the 14.56 level of Signet Jewelers Ltd. (NYSE:SIG) and the 18.9 p/e ratio of Tiffany & Co. (NYSE:TIF). Analysts are forecasting double-digit potential upsides on both stocks, which are worth adding to most portfolios.
Rising cocoa prices will hurt candy makers such as Hershey Co. (NYSE:HSY) whose shares have surged as prices for the commodity plunged last year. Last week, the Pennsylvania chocolate maker raised its 2012 growth target since it was able to increase sales despite a rise in commodity costs. That might not last. Cocoa prices have risen in recent days, according to Reuters. as farmers on the Ivory Coast, the largest producer, reported seeing shortages in parts of the country.
The stock is relatively cheap on a P-E basis, but Wall Street analysts believe it doesn’t have much room to rise. Their one-year price target on the maker of the iconic chocolate bar is $63.67, about 5% above where it trades now. A better alternative may be Nestlé (PINK:NSRGY), which has a potential upside of more than 10% on its U.S. shares. The stock, which is listed on the Pink Sheets, trades at a multiple of 5.29, versus Hershey’s 22.1.
Another Valentine’s stock worth considering is 1-800 Flowers. Shares of the New York company could rise more than 73% over the next 52 weeks, to $5. The stock already is up more than 30% since the start of the year after posting better-than-expected results. With a P-E of 22.39, the stock is cheap relative to its historical performance. The company would make a good target for a private equity player because its brand is well-known and its $190 million market cap would be easy to digest.
Jonathan Berr believes it’s stupid to love a stock because it never loves you back. He doesn’t own any of the stocks listed here.
