Diamonds Are Forever But Is It Time to Buy Tiffany?

As a result of the recent downtrend in the U.S. equity markets, some well-established retailers have lost significant portions of their market caps within the past four weeks. A well-known high end jewelry store chain, Tiffany & Co. (NYSE: TIF), is one of these companies, as its shares have fallen about 25% since July 25, 2011. This pullback can create a buying opportunity for investors to add shares of the company to their long-term portfolios.

Tiffany is currently trading 20.8 times its trailing 12 month's earnings at $62.60. Also, the current dividend rate of 2% is close to the yield of U.S. 10-year notes, which provides an extra incentive to hold the stock.

Jennifer Milan, an analyst at Sterne Agee, posted a research report on the company earlier today, reiterating a Buy rating and lowering the price target to $75. “We note that spending by higher-end consumers tends to be highly tied to net worth such that a prolonged downturn in the markets would inevitably have a pronounced impact on TIF, though we stress that our recent checks suggest that thus far trends seem to be holding up,” she wrote in the report.

Benzinga contacted Milan for further comments regarding Tiffany's potential as a long-term play. She stated that she likes the company's fundamentals and globally diversified business model, which are likely to help the company as the macro environment in the U.S. and Europe becomes healthier. The $75 price target that Milan has on TIF shows that the stock could be a good addition to a long-term portfolio at the current price level.

ACTION ITEMS:

Bullish:
Traders who believe that luxury retailers are going to recover back to the prior levels from the recent pullback might want to consider the following trades:

• Go long Tiffany and other luxury retailers.

• Go long SPDR S&P Retail ETF (NYSE: XRT).

Bearish:
Traders who believe that the macro economic problems in Europe and the U.S will not ease anytime soon may consider alternate positions:

• Short Tiffany and other luxury retailers.

• Buys puts in Tiffany.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.