Stock Picks: TIF Up; NRG Energy down

Luxury retailer Tiffany (TIF) glimmered ahead of the holiday shopping rush, giving investors a reason to be optimistic about at least one retail stock.

Tiffany said third-quarter earnings were generally flat with a year ago, at 35 cents a share, but that was better than the 24 cents a share Wall Street analysts had predicted.

Also welcome news to investors, Tiffany expects net earnings from continuing operations of $1.88 to $1.98 a share, which is up from its previous guidance of $1.65 to $1.75 per diluted share.

For the fourth quarter, the retailer expects mid-single-digit percentage increase in world-wide sales.

“Total sales growth in November-to-date is tracking favorably to management’s expectation, but results in December are most relevant to the company’s ability to achieve its outlook for the fourth quarter,” according to the release.

With Black Friday sales around the corner, all eyes are on consumers as it remains unclear to what extent they will spend this year. But luxury retailers recently have earned analysts’ blessings -- including a sector upgrade from Goldman Sachs -- thanks to reduced inventory and projected traffic.

The Bottom Line: “While discretionary (and certainly luxury retail stocks) have had quite a run and may have gotten ahead of reality, we think TIF remains a standout,” wrote Pali analyst Stacey Widlitz. “Unlike other luxury players, TIF has held a full price stance during the toughest months, protecting the brand.” That’s in addition to a favorable inventory position and powerful market share.

NRG Energy (NRG) shares were slipping amid two downgrades early Wednesday, but pared losses in recent trading.

Earlier this week, the national power plant operator said it would buy the first of First Solar’s (FSLR) utility scale solar power projects in California for an undisclosed sum. It also announced a $10 per share cash dividend on its 4% Convertible Perpetual Preferred Stock issued in December 2004, payable on Dec. 15, 2009, to holders of record of its preferred stock as of Dec. 1, 2009.

But it was lower natural gas prices that prompted UBS to downgrade the stock to Neutral from Buy. And it was the likelihood that it would repurchase fewer shares that inspired Goldman Sachs, which has a Buy rating and a $34 price target, to cut estimates through 2012.

Still, Goldman analysts wrote that the stock remains one of their top picks, as multiple catalysts exist, including potential long-run expansion of buybacks, additional project award announcements mostly for natural gas generating projects or renewable efforts, and incremental hedging of its existing coal and nuclear fleet.

The Bottom Line: The company's earnings are notably sensitive to the long-term natural gas prices, but analysts seem to find the shares are reasonably valued at worst.