Michael Kors dresses for success in 2013

A year after going public, the retailer has great growth potential and bullish technicals

By Ken Shreve

Heading into Friday, the bulls had plenty of reasons to be happy: An increasing number of technical breakouts in recent days and an even larger number of compelling setups out there -- growth names getting into position for possible breakouts.

Major averages were under pressure early Friday, but one day of market weakness won't kill a market uptrend -- especially after three solid days of accumulation for the Nasdaq Composite on December 11, 17 and 18. There have been recent signs that new money is coming in from the sidelines -- and that means something.

Names like Equinix (EQIX -0.70%), FMC Corp. (FMC -0.99%) and Urban Outfitters (URBN -2.46%) all have a good chance of outperforming in 2013, but my top pick isMichael Kors (KORS -2.94%). 

That's right, a stock with an already-lofty valuation of 40 times trailing earnings and 34 times forward earnings could see multiple-expansion in 2013. A lot of top-performing growth fund managers already own KORS, and I'm expecting more to jump on board in 2013.

A stock tends to appreciate the most when a company's still in the early stages of growth and this certainly applies to Michael Kors. It went public in December 2011 at $20 a share. The company sells clothing, footwear and other apparel and accessories through luxury department stores and its own shops.

Its current technical structure is a second-stage, base-on-base pattern. The pattern forms when a stock breaks out of an initial base, rallies less than 20%, and then forms a second base on top of the prior one.

Big earnings and sales growth in recent quarters and strong growth prospects should fuel more gains for the KORS in 2013. Last month, the company reported fiscal second-quarter profit of $0.49 cents a share, up 96 percent from a year ago. Sales growth accelerated for the second straight quarter, rising 74% to $532.9 million. Overall, same-store sales rose an impressive 45.2%. Michael Kors is no stranger to strong same-store sales growth. In the first quarter, same-store sales rose 37%. In the fourth quarter of fiscal 2012, they rose 36%.

Its next earnings report isn't due until mid-February. The consensus estimate calls for profit of $0.41 a share, up 105% from a year ago. Sales are seen rising 46% to $543.6 million.

With such a solid track record of execution, there's no reason to think that KORS won't continue to execute going forward. It has the potential to be a big winner in 2013.

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