2 Stocks That Are Great Value Buys After Recent Pullbacks

Includes: COH, KORS, WFM
by: Nicholas Ward

I consider myself to be a value investor. I look for stocks with steady business models built for long term success that seem to be undervalued in comparison to the recent market trends and their competitors within their respective industries after recent stock price pullbacks - especially when these pullbacks seem to be unjustified. I don't like to take major risks. I have found that an investor can make money in any market if they are patient enough to wait for juicy buying opportunities to arise. These opportunities can inevitably be found so long as regular research is performed. If one is to follow this strategy, purchase price is very important to portfolio health. In this article I will discuss two stocks that I've had my eye on for some time now and which seem to be nearing price points that I feel comfortable buying into.

Coach (NYSE:COH):

Coach's stock price has been falling steadily since March, 2012. The stock is nearly 40% off its 52 week high, closing yesterday at $47.82. The stock has recently fallen to it's 52 week low, $45.87, on February, 26th. Yesterday the stock experienced a bump in share price due to apparent buyout rumors associated with a headline on dealReporter. Since then, market currents have shown that Wedbush Securities' Corinna Freedman is amongst a group of analysts who have called this rumor into question due to Coach's massive market cap of 13.7 billion.

Before I mentioned that I don't like to take unnecessary risks when investing. Buying into a takeover rumor is not a strategy that I would recommend as there are entirely too many variables being considered by the market that may or may not even exist. In Coach's case, I will say that regardless or not if these rumors are true, the stock is still a buy due to its undervalued nature with quite a bit of upside. The company has established a strong brand name and supports one of the highest gross margins within its sector at 72.76%. Who wouldn't want to be involved in a business that spends twenty eight cents to make one dollar?

Coach's great value is highlighted when looking at its P/E and EPS numbers as well. Its current P/E multiple is under 13, sitting 12. 8 which is well under the retail apparel industry average that sits at 18x. Both Coach's 1 and 5 year EPS growth rates out shine the industry market as well, scoring 20.93% and 15.93% versus 15.22% and 15.08% respectively.

Its biggest rival within the apparel and handbag market, Michael Kors (NYSE:KORS), has drastically out-performed Coach in the recent past. This is due to a sizable earnings beat and the company's push towards being a complete lifestyle brand, rather than focusing on strictly handbags. I believe that Coach does not need to follow this philosophy to remain to be a successful company. It may if it chooses to, possibly creating tremendous growth opportunities within itself; however, I believe that the company's iconic handbags are enough to ensure the solidity of the brand name. KORS' gross margin is significantly lower than COH's at 57.71% and it's P/E multiple is nearly 3x higher at 34.9x. If you are interested in a high end apparel stock, I think that Coach is the clear choice, especially for the value investor.

I might wait to see if there is a pull back from these takeover rumors before pulling the trigger on this one. As of right now the stock price has not receded to its levels prior to yesterday's unconfirmed reports. I feel comfortable that either way there is money to be made here, but entry point is very important to me and I'd like to buy the stock at the 46-47 dollar range that its been floating around the past week before yesterday's movement. I can even see this stock falling through its 52 week low and continually slipping lower once the dust settles on this recent movement. Its going to take a major development to change wide scale investor sentiment on this stock, but I expect the next several quarters' earnings reports to be positive and the stock to regain much of the value that its lost in the past year. And, I almost forgot to mention that the stock boasts a respectable 2.57% dividend that an investor can happily collect while waiting for the stock price to rise to its former valuation levels.

Whole Foods Market (NASDAQ:WFM):

Whole Foods Market is another stock that I am starting to like more and more. The company's stock price has fallen from nearly $97 to a low of $83 in the past two weeks. The stock closed yesterday at $85.30. Over the last several days the stock has experienced a two dollar bump in price after it had dropped significantly due to fears that seem to be related to the recent Wal-Mart (NYSE:WMT) scare, the extra payroll tax burden being put on the American consumer, and the economy's uncertain future; all of which could really hurt businesses in the retail and grocery industries. While I agree with the overall sentiment with the market that this stock was over valued, I think that this fall in share price has created a wonderful buying opportunity. Whole Foods has been a market darling over the past two years, quickly bouncing back from any drops in its stock price. I see no reason that this fall will be any different.

I also really like the way that John Mackey, the founder and current co-CEO at WFM is running his business. Mackey is a staunch believer in free market capitalism and believes that his business will succeed because of its superior produces and services. The company pays a small dividend, 0.95%, which I expect to grow. Mackey has said that his focus in not solely on shareholder returns, but on growing his business with high standards across the board. I expect the rise in health conscious eaters in America and across the world to continue and I really like how Whole Foods has situated itself to capitalize on this trend.

Whole Foods Market is still a growth company when you look at its numbers. Whole Foods trades at 5.6x tangible book value and supports a high multiple at nearly 32x earnings. The industry average P/E is 23.6x. With this being said, I think the EPS growth numbers and the changing dynamic in the consumer outlook on the food industry shows the company's intrinsic value. WFM boasts 1 and 5 year EPS growth of 30.61% and 14.38% versus the averages of it's industry at 5.59% and 11.61%.

I like WFM's future prospects and I like this current drop in stock price as a place to start a position. I think that a patient investor can wait as the stock may continue to fall in the short term with the looming issues on Capitol Hill. I really like WFM in the $75 dollar range and think that if the market trends lower in the coming weeks that investors will have an opportunity to buy into a great company for more than a fair price that doesn't come around often for a stock like this.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.