1 Stock I'm Gobbling Up Against the Grain

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Not long ago, I noted a high-end retailer that was on my watchlist. Tiffany (NYS: TIF) was trading at a healthy $70 per share, which was a little rich for my blood at the time. But I also made it a point that any pullback in the stock price would get me looking closer at it, and today it has my full attention.

The power of the blue box
I doubt Tiffany needs any introduction. As a premier high-end luxury retailer, Tiffany operates more than 250 stores in 22 countries. Approximately 90% of the company's sales come from jewelry, and this year it's celebrating its 175th anniversary.

The gift that keeps on giving
Brand power: There's no mistaking Tiffany's blue box. The brand holds some serious sway, and I believe this advantage will only get stronger as time goes on, which gives the company some pricing power. Granted, that power can ebb and flow with general economic conditions, but on the whole, Tiffany isn't competing with low-cost providers like Blue Nile (NAS: NILE) , because it doesn't have to.

Still growing: With just over 250 stores today, Tiffany still sees plenty of room for growth. Management's long-term strategy is to continue opening an average of 20 or so stores each year for the "foreseeable future." Those additions mean we can expect a 50% increase in the Americas' store base (from 102 today), a major focus on increasing the footprint in the Asia-Pacific region (with emphasis on China), and growth throughout Europe to at least 50 stores, from around 30 today.

As always, time is on my side: Diamond prices are down close to 15% this year based on weak demand -- understandable in such a tumultuous global economy. However, management is already seeing costs for diamonds as well as precious metals stabilizing, and if this trend continues, we should see an improvement in gross margin in the second half of the year, thanks in part to that pricing power we talked about earlier.

Nothing is flawless'
Plenty of pessimism: Recession is still the word of the day every day, it seems, and I get it to an extent. But call me a glass-half-full guy -- at least in this case. Almost half of annual sales come from right here in the United States, but the other half is spread around a good bit: Japan gets about 17%, Asia-Pacific 21%, and Europe 12% -- but also note that the U.K. makes up half of all European sales.

Fake-out: Luxury-goods items like Tiffany and apparel-maker Coach (NYS: COH) will always be exposed to counterfeit risk. But at the end of the day it's not the real thing, and consumers who want the real thing are going to get it. In Coach's case, a recent poll of women in the counterfeiting capital of the world, China, revealed that 95% would be embarrassed to own a counterfeit purse. You can't put a premium on that sort of consumer mentality.

What's in a name? Of course, there is the possibility that as Tiffany continues to grow, its presence could have a dilutive effect on the brand. But I'm not too concerned at this point in the game. We aren't looking at a store count going from 250 today to 500 in five years, and expansion opportunities in places like Russia, the United Arab Emirates, and more in Latin America will take the brand to places where it's wanted.

Buying diamonds the affordable way
Revised guidance for the full year pegs earnings right at about $3.75 per share, and that comes after falling short of expectations for the fourth quarter last year. Management's long-term goals of growing sales by 10% to 12% and earnings by at least 15% annually are a bit optimistic in my opinion, but even ratcheting those numbers down somewhat, I think the stock is worth more around $60 per share today.

For context, I also looked at multiples. Going back to 2000, Tiffany's stock has traded for an average of about 23 times earnings and 11.5 times EV/EBITDA compared with today's numbers of 15.8 and 8.2, respectively. Of course, those numbers come down as a company grows, but given the earnings growth potential here, I think we have a market beater over the course of the next five years and even beyond. So I'm buying $1,000 worth of shares for my Motley portfolio.

I do
I know it may seem like a troubling environment to add a luxury-goods retailer to the portfolio. Pessimism is around every corner, and management has made no bones about it. Tiffany's stock price today reflects that pessimism, but I don't think it'll stay down forever. And when the tide does turn, we are going to have a sparkling piece of the action. Make sure to follow me on Twitter to keep up with all of my Motley recommendations.

Tiffany isn't the only company poised to profit from worldwide growth. Learn more about the names we think are destined for global greatness in our special report, "3 American Companies Set to Dominate the World."

The article 1 Stock I'm Gobbling Up Against the Grain originally appeared on Fool.com.

Jason Moseris an analyst with Motley Fool One and Stock Advisor and owns no shares of any companies mentioned.Motley Fool newsletter serviceshave recommended buying shares of Coach and Blue Nile, shorting Tiffany, and creating a call spread/risk-reversal position in Blue Nile. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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