'The Great Gatsby' Portfolio: Building a West Egg Nest Egg

By Justin Sharon  MAY 09, 2013 11:50 AM

Invest wisely in these names and, with a little luck, your screen will be as green as the ethereal emerald light at the end of Daisy's dock.

 


Wall Street hits dizzying heights as conspicuous consumption runs amok. New technologies utterly transform America. A country loosens its collective collar, in the mood to indulge again after emerging from a dire decade during which war was everywhere. And mixed in with the rampant materialism, much hand-wringing and anxiety over a loss of moorings and meaning amid all the empty excess. 1922? Yes, but arguably an equally apt description of 2013. Thus, with due respect to The Great Gatsby’s unforgettable last line, there is actually no need to be "borne back ceaselessly into the past," for many themes of F. Scott Fitzgerald's iconic novel remain fresh as a Daisy, Buchanan or otherwise.

Baz Luhrmann's buzz-worthy movie of the same name opens on Friday, starring Leonardo DiCaprio in the title role and featuring Carey Mulligan as his aforementioned love interest. Tobey Maguire and Isla Fisher round out an impressive cast that also includes Bollywood legend Amitabh Bachchan.

An accompanying marketing blitz is already well underway, transporting us to the era of affluent West Egg mansions, when high society and low morals mixed along Long Island's Gold Coast. The film itself features an orgy of upscale product placements to conjure up images of old-money aristocrats whose blood bleeds blue. Since the book's narrator Nick Carraway successfully sold bonds in an era when stocks also ascended to the stratosphere, it seems only appropriate that we look at ways to make money off the renewed interest in all things Gatsby.

So join us as we put on the Ritz with a Roaring Twenties portfolio that is the bee's knees and cat's pajamas. Invest wisely in the next 10 names and, with a little luck, your screens will be as green as the ethereal emerald light at the end of Daisy's dock.

The Gatsby Portfolio

Two short blocks from New York’s swanky Plaza Hotel, where F. Scott Fitzgerald once frolicked in the fountain and whose hallowed halls feature in his superlative work, stands the 42,000-square-foot Fifth Avenue headquarters of Tiffany (NYSE:TIF). Its upscale Art Deco necklaces and earrings were must-have items for newly-liberated society ladies of the 1920s, and the retailer is rushing to embrace Luhrmann’s film. Pièce de résistance among its $2 million worth of blingy movie-related baubles is the Savoy headpiece worn by Carey Mulligan’s Daisy, costing a cool $200,000. (Ms. Mulligan previously played Winnie Gekko-Moore, Gordon’s daughter, in Wall Street 2, and so is presumably not short of cash, but that price may bring a tear to even the eye of her fictional father.)

Other items among its 30 Gatsby-related jewelry offerings embrace more affordable price points, and Tiffany has also unveiled a related Ziegfeld collection for the occasion. The company inauspiciously went public in 1987, a year notorious for an even steeper slide in the Dow (INDEXDJX:.DJI) than the 1929 Crash that officially ended Gatsby's age of opulence. It has subsequently thrived however, and reached a fresh 52-week peak just this Monday. Shares have risen more than 30% in 2013 alone, with the company currently guiding for 6% to 9% earnings growth in fiscal 2013, as it embarks on a concerted push into silver and gold. Tiffany also recently raised prices, which should be good for gross margins. Risks include a slowdown in its hitherto red-hot Chinese market and competition from online rivals, notably Blue Nile (NASDAQ:NILE).

Robert Redford memorably sported Ralph Lauren’s (NYSE:RL) spiffy wardrobe for the 1974 version of Gatsby, and the upscale fashion firm is now busy reminding a new generation of its heritage. The company’s name instantly brings to mind pictures of patrician "Polo"-playing "Chaps," to name two of its aspirational brands Yet ironically, given this air of Greenwich old money grandeur, the retailer was founded by a scrappy Jewish boy from the Bronx, born with the decidedly non-WASPy last name of Lifshitz. (He also once worked as a salesman at the privately owned Brooks Brothers, which is unleashing an ad campaign of its own for the film.)

Shares hit the highest level in their history this week, and the company boasts a pristine balance sheet with about $1.1 billion of cash on hand. International expansion also offers excellent growth opportunities. Potential headwinds include private label competition and a relatively high exposure to Macy's (NYSE:M), which represented roughly 20% of wholesale revenue for fiscal 2012. 

Interestingly enough, several foreign firms rate a mention in what is the ultimate Great American Novel. (Minnesota born he may have been, but Mr. Fitzgerald and his wife Zelda memorably spent time in 1920's Paris, as part of a cosmopolitan milieu that also included Ernest Hemingway.)

France’s own LVMH Moët Hennessy – Louis Vuitton (OTCMKTS:LVMUY), fresh from sponsoring a lavish Gatsby after-party, is the last word in luxury. The firm controls a quartet of champagnes capable of blowing a hole in any expense account (Dom Pérignon, Krug, Moët & Chandon, and Veuve Clicquot), ably augmented by other ultra-premium brands including Bulgari and Fendi. Earlier this year it announced a 12% increase in annual net profit, to 3.42 billion euros, and LVMH also offers investors a dividend yield in excess of 2.00%. Shareholders should be alert to increasing signs of a slowdown in the previously free-spending Far East, especially in the critical category of upscale watches.

Prada S.p.A (OTCMKTS:PRDSY) was founded in 1913, only one year before the lights went out all over Europe. By the early 1920s, however, American women, weary of war, were ready to let their bobbed hair down. In fact Daisy donned one of the company’s daring metallic gowns to a soirée hosted by Gatsby. Fast-forward to the present day and its cocktail dresses are again a ubiquitous presence on the silver screen. Some 40 custom-made offerings appear on set, many made by their Miu Miu division. Yet much like LVMH, and as distinct from Giorgio Armani, Prada’s clothes tend to sell less well than their other accessories and footwear, which command considerably higher margins. Despite being a multinational empire, this remains very much a family affair run by the husband and wife team of Miuccia and Patrizio. (The latter a quirky character famous for only hiring people of certain astrological signs.) 

The fashion firm is based in Italy's catwalk capital of Milan, but sensibly opted to list in Hong Kong, which offers both higher multiples and easy access to its growth engine of Asia. Any company that counts both the Devil and, at least until recently, the Pope, among its customers would appear to have all constituencies covered. Indeed shares surged 6.76% on Monday alone, and are up about 40% over the past 12 months amid good global growth and stringent cost controls. In April Prada announced an almost 45% increase in net profit, along with plans to nearly double its dividend. 

A relative lack of liquidity for Prada’s pink sheets stock may be an issue for US investors, along with the ongoing impact of austerity in its home market of Italy. (Although, as one of its extravagant outposts just replaced a humble McDonald’s (NYSE:MCD) in Milan’s main shopping center, it appears any concerns about the continent’s spending power are overblown.)

On week-ends his Rolls-Royce became an omnibus, bearing parties to and from the city between nine in the morning and long past midnight.
-- The Great Gatsby
, Chapter 3.

While some say the yellow car in question, an integral part of the Gatsby plot, was actually a Duesenberg, it is Rolls-Royce (OTCMKTS:RYCEY) that merits both a mention in the book and on-screen airtime alongside Robert Redford. The iconic English automobile is now actually part of Germany’s Bayerische Motoren Werke Aktiengesellschaft (OTCMKTS:BAMXY) — BMW to you and me. However, given that Nick Carraway and Jay Gatsby both fought bloody battles against the Kaiser’s army, it is doubtful they would want to own a car from the Fatherland. Far better, then, to stick with the Mother Country’s stock. Britain’s Rolls-Royce was privatized by the recently departed Margaret Thatcher, who entered the world as did Fitzgerald’s masterpiece in 1925. The present day entity, whose famous logo of interlocking “Rs” survives intact, is an aircraft engine giant second only to General Electric (NYSE:GE) in its industry. Shares, up about 40% in the past year, are trading at fresh 52-week peaks as we speak. The stock sports an impressive -- and growing -- dividend yield, and just won a $1.6 billion aerospace order. Last week’s abrupt departure of recently installed key executive Mark King is a concern, however.

After seeing how the other half lives with that high-priced quintet upstairs, jump in the rumble seat as we explore five slightly more frugal Gatsby offerings downstairs that you needn't be in the top 1% to enjoy.

Whisper it softly, but by common consent the handful of hitherto Gatsby films haven't been anything to write home about. This may be due to the work's inherently literary origins. Assuming a $194,000 first-edition is out of reachAmazon (NASDAQ:AMZN) and Barnes & Noble (NYSE:BKS) each offer far more affordable ways to play Gatsby-mania as the book rockets up their respective bestseller lists, even while splashy new cover tie-ins rankle traditionalists. Category-killer Amazon recently reported a 21% increase in active users, to 209 million, with gross margins gaining 260 basis points. A bill passed in the Senate on Monday allowing states to tax online sales, may, however, hint at potential trouble ahead for the largest Internet retailer on Earth. As for Barnes & Noble, its heavily shorted shares had been badly underperforming the S&P 500 amid intense iPad (NASDAQ:AAPL) and Kindle competition. However, in the sort of fantastical script even a fine fiction writer like Fitzgerald couldn't have conjured up, shares suddenly soared to fresh peaks today on news that Microsoft (NASDAQ:MSFT) may buy its Nook business for $1 billion.

Time Warner (NYSE:TWX) is a diversified entertainment empire whose Burbank-based Warner Brothers studio has bankrolled Luhrmann's $120 million flick. It has high hopes for Gatsby, which also opens the Cannes Film Festival next week, although several Hollywood insiders have characterized as ominous the delayed release date. (The movie was originally scheduled to open last December.) The company recently announced plans to spin off its magazine unit into a separate entity. These titles include People, whose inaugural issue 39 years ago ironically enough tipped its straw hat to Gatsby on the front cover. (And incidentally, anyone who thinks crass commercialism is a recent development in the movie industry should think again. The process is as old as Time, or at least 1974.) Shares have surged some 70% in the past year, boosted by robust capital return and an ongoing buyback program. Cable network operating profit, which includes CNN and HBO, also rose a solid 11% in its most recent quarter. That said, revenue came in a little light, and higher TV programming costs could cause customers to embrace an assortment of less costly digital offerings.

This Gatsby is especially noteworthy for having been shot in 3-D. While the current Barron’s points to a post-Avatar malaise in the medium, it also cites an industry analyst as saying, “If people respond well to [Gatsby], you could have a surge in period pieces and dramas in 3-D.” Many will chose to watch this visual feast in the surround sound glory of IMAX technology, even at premium prices that can cost up to $20.50 per ticket in New York. Industry giant IMAX Corporation (NYSE:IMAX) operates 738 projection screens worldwide, and also supplies those ubiquitous 3-D glasses. The Canadian company has been a solid performer over the past year, and while its fourth quarter results missed Street estimates, a stellar opening weekend for Iron Man 3 and impressive upcoming slate including Man of Steel hint at improvement.

Lastly, one can’t bid Gatsby goodbye without mentioning the music. Indeed even Vogue, the final word in fashion, trumpets the “Jay-Z soundtrack” on its current cover, while remaining strangely silent on the clothes. Purists who far prefer flappers to rappers are already recoiling in horror at an ode to the Jazz Age that features high decibel blaring by such thoroughly modern millies as Beyoncé and Fergie, to say nothing of Q-Tip and Andre 3000. But it is what it is, and alcohol outfit Beam, Inc. (NYSE:BEAM) — whose liquid assets were part of the prohibition pantheon during Gatsby’s speakeasy era — can boast a hip hop connection to boot. After all, it owns Courvoisier cognac, which Busta Rymes and P. Diddy once employed as an emblem of the sort of ostentatious wealth that Jay-G(atsby) was intimately acquainted with way before Jay-Z ever arrived on the scene. (The music video even features vintage clothes and an old-school automobile.)

Beam, whose other brands include Maker's Mark Bourbon and Skinnygirl drinks, is certainly in good spirits at the moment, riding a recent analyst upgrade to rise to a fresh one-year best last week. First-quarter earnings exceeded estimates, and its conservative capital structure and debt-reduction efforts have won additional investor plaudits. Red flags to be aware of include foreign currency fluctuations, with almost half of all revenue derived from outside the US.

Some of the saltier Courvoisier lyrics should be listened to with delicate ears firmly plugged, and — spoiler alert! — the fate that ultimately befell both our protagonist and the twenties that roared with him ought only to be seen through similarly covered eyes. But boy, while it raged, what a hotsy-totsy party it was. Since F. Scott Fitzgerald himself once famously opined that “there are no second acts in American lives,” Gatsby’s age of exuberance and angst in equal measure couldn’t possibly occur again. Could it?

See also: Early Reviews for 'The Great Gatsby' Suggest 'Iron Man 3' Will Have Another Stellar Weekend
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.