1 Stock for a Happy Holiday

You're probably not counting, but it's a mere 127 days until Christmas. While that's a long time for you and me to put off buying things until the day before -- 126 days, really -- it's not a whole lot of time for companies to get their act together. Some of the preparation is routine, like raising inventories and marketing budgets, but some of the prep is going to eat all 127 days. Companies that want to have a successful holiday season need to start building their brands right now. A few high-end retailers are doing just that, and when New Year's rolls around, they'll be dancing on the rooftops.

Accessories for a beautiful portfolio
For no apparent reason, people love to give tiny things that cost a lot of money to other people for special occasions. I think more people would give gift cards if you could buy them in postage stamp sizes. While it's odd, companies like Michael Kors (NYS: KORS) and Coach (NYS: COH) have used the trend to make a killing. Kors sells shoes, bags, watches, and clothes for pickup trucks of cash. Coach focuses on the handbag side of things, but it's recently branched out to help sales.

Kors had a great first few months in 2012, with the stock rising 59% by the end of February. Since then, Kors has done well, but not as well as it did in those first two months. Since the end of February, the stock has risen 20%, and now sits at just over $51. Revenue increased 71% last quarter, which is fantastic, but that's not the most interesting bit. The two keys to Kors -- and the things that point toward a strong end of the year -- are its same-store sales and gross margins.

Same-store sales grew 37% last quarter, showing how strong the demand for Kors is. That's a great indicator that come December, lots of little boxes are going to be packed full of Kors' products. On top of the impressive sales increase Kors posted a gross margin of 63%, which shows how strong the company's pricing power is. This stuff never has to go on sale.

Coach is doing even better, in terms of margins. Last quarter, the company recorded a 73% gross margin. Being a discount-minded buyer, I don't even understand how that's possible. Maybe there are signs in stores advertising -10% off. "Ooh," people say, "I'd love to pay a bit more." Coach's same-store sales increase last quarter was 13%, which also points to a strong holiday season ahead.

A penny saved
It's not just the products that are expensive at Kors, the stock is steep, too. Kors is trading at a forward P/E of 30. Coach has managed to keep its stock price down, in part because of a recent announcement that its next year is going to be an investment year, which is code for less growth. But if you believe in the company, now can be a great time to get in.

If you're looking for a discount, investors might do better to look into Fossil (NYS: FOSL) or Tiffany (NYS: TIF) . Fossil took a massive dive in May this year, and is only 12% up in 2012. Tiffany is trading at a forward P/E of 14 and is trading 10% lower than it was at the beginning of the year. Both companies have had solid returns in the past, and neither is suffering from any major brand identity problems. Fossil increased revenue 14% last quarter, and Tiffany increased 8% in its last quarter. That's not bad, for a much better price.

The bottom line
Coach is my choice out of the four. I like that investors have gotten scared off by a tiny bit of bad news, and I think it presents an excellent opportunity to buy. Fossil is in a similar place, but the changes that Coach is implementing make me more upbeat about its future. Coach is rolling out more men's products, and that sounds like a perfect long-term plan for the brand.

Kors would be a great stock, if it hadn't attracted such attention already. Everyone already got excited about Kors, but they hate -- kind of -- Coach. The Fool has pulled together a special report highlighting three other companies that are being overlooked by the big firms, but that small investors can make a killing on. Get your free copy of Middle-Class Millionaire-Makers today to get in on the action.

The article 1 Stock for a Happy Holiday originally appeared on Fool.com.

Fool contributor Andrew Marder does not own shares of the companies mentioned. The Motley Fool owns shares of Coach, Tiffany, and Fossil. Motley Fool newsletter services have recommended buying shares of Fossil and Coach, and a separate service has recommended shorting Tiffany and Fossil. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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