Saturday, June 21, 2014

Recent Buy


I like to share what I am doing with my portfolio especially during this overheated market.  It is nice to see other investors and how they persevere through the different economic times and through trouble.  I made another recent purchase that involves more risks then I usually like, but has the potential to pay off long term especially if average down on it.  It is a long term turnaround story. 

I purchased 9 shares of Coach Inc. (COH) at $34.75 per share.

Risks are the difficulty of turning a fashion brand around, but the balance sheet is good. I originally tried for $34.25 and then a little bit higher, but was at work and could not time it.  Oh well over several years it will not matter much if the company is in better shape.  The stock has dropped 13-15% in the last 3 trading days following a downbeat investor day.  It is the biggest laggard on the S&P 500 this year.   The dividend has been $0.3375 for the last 4 quarters.  Payout ratio for the dividend is under 41% and has not had a ton of history with the dividend.  It may freeze it for awhile to see how the restructuring turns out.  I believe international sales are doing fine, but the problem is at home.  A new line of handbags are set to come out in September and the stock is near 2009 lows.  Michael KORS and Kate Spade have been taking market share for the last year or so.  I remember last year considering options on KORS or buying some around $51 a share, but never did.  I am focused mainly on dividend income from what I feel are safe companies, but willing to take risks to enjoy staying in the game.  If I fail then I can get back up and learn from my mistakes as I go.  I am a bit of a contrarian and like to buy when most of wall street hates a good undervalued company.  I’ve done this quite a few times, but some names I left too early before dividends were paid to wait.  Now they are growth and dividend growth stocks.  This company is no different and somewhat more risky as consumers taste of fashions change a lot.  The price of some products is scaled to the higher end luxury category.  They are closing up to 70 outlet stores and slowing down promotions as announced on investor day.  The resounding theme is that there is no quick fix and any missteps could be costly.  The company is over 72 years old and I think they will survive and eventually do better.  One problem is a possible attempt to take it over or do a leveraged buyout.  I prefer that management and the board just wake up and fix the business.

The bottom line is I am not investing for next month or next year, but for the long term.  I have more time to wait these trends out and see what happens.  When I was more into turning over stocks and less patient this was not the case.

Anyone else looking at a turnaround play?  Does it pay off to be a Contrarian at times? 

Photo Source: (Google Images)


  1. Hey DS,
    I really like the points you have made here for COH. It's interesting to see a company like Coach not doing well because almost every female I know either owns or has owned a Coach bag. With that being said they have been around for a long time and I see a turnaround in the next few years. You mentioned that you have plenty of time to wait so I think you will be rewarded for your patience. The dividend is pretty high at 3.41% and they are trading at 52 week lows. Thanks for sharing and I will keep this on my watch list because I see a potential turnaround here.

  2. Dividend Mongrel,

    Thanks for reading and the feedback. I'm not sure I bought in at the bottom with these downgrades that are coming late, but dividends should provide some stability at least for the short term. If it drops as low as some of these analyst targets I could always buy more as long as have some additional cash to put to work at the time.

    Best wishes on your Dividend Journey!

  3. COH is a very high return on capital business. Management is good too! It's an interesting buy. My taste in fashion is horrible so I can't feel comfortable own it as switching cost is almost non-existence.

    1. Henry,

      I don't blame you for not owning COH. It might be risky at least in the near term and who knows if the customers come back or not. I think they will, but it will take time to turn it around. If you could handle a frozen dividend for a little while it might be alright. I prefer a growing dividend, but if I decide to DRIP it as well and it stays on sale as a value investment it could turn out great. This has happened a few times with other well known companies such as SBUX, DIS, and F. There are a couple risky stocks today that can be a high reward if they execute things right

      Thanks for stopping by!

  4. I have my eye on coach also, especially with the recent dip in price. The yield is attractive but buyers are banking on the turnaround. I think they are taking the necessary steps to put them in a good position for a turnaround but think buyers will need to be patient as it may take a year or two for it to happen. At these prices, I am willing to take on what I feel is a calculated risk. We currently have a limit purchase at $33.00 so we'll see what happens. AFFJ

    I will also add that I have access to Edward Jones buy list and COACH has been on that list way before the recent price dip. This only adds to my confidence that the company can turn things around. :)

    1. AFFJ,

      Good to see someone else looking at a possible value play. Seems like a lot of people are looking for it to drop a bit further before buying in. Low $30's, but if it goes under that like a couple analyst project I would want to back up the truck. I have time to wait for the turnaround to occur just have to make sure it's executed well. I think the dividend may be frozen for now which is not awful, but not great either. With the drop the yield is good and capital appreciation potential over several years can be a great bonus. I hope Edward Jones is right, but would like to have more shares before they shoot higher!

      Thanks for the info AFFJ!