Tiffany gained 23% in 3Q, sees demand rising

What do you think of shares of Tiffany & Co.? The company seems to be doing the right things.

R.V., via the Internet


Its little blue box has contained good earnings results lately.

Not many retailers can say domestic sales are being driven by purchases of items costing $20,000 or more, but that is the case with this famous jeweler.


Strong U.S. results, particularly all those big-ticket purchases, have compensated for weak results in Japan. It recently reported fiscal third-quarter profits were up 23 percent, and the firm raised its full-year outlook.

A new line of designer jewelry by architect Frank Gehry and its renovated flagship store on New York's Fifth Avenue have made solid contributions. Besides jewelry, Tiffany sells china, fashion accessories, watches, fragrances and gift items.

There has been industrywide concern about the impact on holiday diamond sales from the Warner Bros. film Blood Diamond starring Leonardo DiCaprio, which depicts violent results of uncontrolled diamond trading.

But most analysts expect any financial effect to be short-lived. Responding to the film's release, Tiffany asserted that it tries to assure the responsible mining of all materials used to make its jewelry.

Shares of Tiffany (TIF) are up 3 percent this year after a gain of 20 percent last year and decline of 29 percent in 2004. The company, which has little debt and significant cash, has repurchased shares.

Its luxury market is primarily influenced by the mind-set of high-income consumers. To meet rising demand from this segment, Tiffany has doubled the number of stores and boutiques it operates in the United States and abroad to 164 in the past decade.

Half of its international business comes from the mature market of Japan, but it has growth opportunities in China, other Southeast Asian countries, Australia and Europe.

To raise its brand awareness, Tiffany signed a 10-year license with Italy's Luxottica Group to develop the jeweler's first sunglasses and prescription eyewear line. They will be sold not only in Tiffany stores but also by other chains. Luxottica makes glasses for Chanel, Bulgari and Polo Ralph Lauren.


Consensus rating on Tiffany shares is a "hold," according to Thomson Financial. That consists of one "strong buy," four "buys," eight "holds" and one "strong sell."

Earnings are expected to increase 3 percent this year versus 10 percent forecast for the jewelry store industry. Next year's predicted 14 percent increase is in line with the forecast for its peers. The expected three-year annualized growth rate of 12 percent compares with 14 percent predicted industrywide.

I am considering investing in one of the American Funds. What do you think of American Funds Investment Company of America?

L.R., via the Internet

Its lineup of portfolio managers reads like the shingle of a large law firm.

Nine managers, their tenures at the fund ranging from 19 years to less than a year, each handle separate portfolios. Adding to this strength in numbers is American Funds' team of more than 140 investment researchers worldwide.


The $89 billion American Funds Investment Company of America "A" (AIVSX) has had a total return of 15 percent over the past 12 months to rank below the midpoint of all large value funds.

Its three-year annualized return of 12 percent puts it in the lowest one-third of its peers.

"I do recommend it because it is a pretty good fund, has low expenses and American has better research backing than just about anywhere else," said Paul Herbert, an analyst with Morningstar Inc. in Chicago. "It has been a bit iffy lately, however, since the bigger-name stocks it emphasizes haven't done as well as smaller names."

The fund favors blue-chip stocks, many of which pay dividends, but is also willing to buy depressed growth stocks. The managers place a significant portion of assets in bonds and cash at various times.

It has not participated in the recent revival of large caps in part because it holds a significant portion of energy stocks, and these have lagged, Herbert said. Nonetheless, those big names it holds could be ready for a comeback.

With so many managers, there is also the risk their portfolios may cancel each other out.


The largest stock concentrations are industrial materials, financial services, consumer goods, technology hardware and energy.

Top holdings include Altria Group, AT&T;, General Electric, Citigroup, Lowe's, Microsoft, Oracle, Fannie Mae, Schlumberger and BellSouth.

This 5.75 percent "load" (sales charge) fund requires a $250 minimum initial investment and has an annual expense ratio of 0.55 percent.

Herbert prefers other funds in the American family, such as Washington Mutual Investors (AWSHX), which is more committed to dividends, and Fundamental Investors (ANCFX), which is smaller and more nimble.

I would like to know more about what "life-cycle" funds are because I think they'd save me some time and effort.

K.R., via the Internet


They're gaining in popularity.

Life-cycle funds, also known as target-retirement funds or age-based funds, evolve with your age. They use a portfolio of stocks, bonds and cash, and the stock portion generally decreases as you move closer to retirement.

Typically a low-cost "fund of funds" structured between stocks and fixed income, they become more conservative as you grow older.

Three of the larger providers of this type of fund are Vanguard, Fidelity and T. Rowe Price.

You could do the same yourself, of course, but this provides a way to put the process on automatic pilot. Select a fund with a maturity date close to your expected retirement and keep the money invested.

"These funds are good for investors who don't like to monitor investment closely, instead sticking with a core holding requiring just one decision," said Mark Salzinger, publisher and editor of The No-Load Fund Investor of Brentwood, Tenn. "What they lack, in my opinion, is any tactical asset allocation because they simply go by the historical pattern of risk and return."


Andrew Leckey writes for Tribune Media Services.