Blue Nile (NILE)

While Blue Nile does not have the cachet of Tiffany, they do not have to charge tax to buyers outside Washington State because they sell via the Internet. As the number of price-sensitive shoppers increases due to higher gas prices and lower home prices, this tax savings could contribute to increased sales for Nile.

Will Nile close above $100 again? Yes, but if it pulls back, I would buy and hold at least until December when retail stocks normally taper off. An exception to this was COH last holiday season. http://stockcharts.com/h-sc/ui?s=coh&p=D&b=5&g=0&id=0.

Will Blue Nile be naughty or nice? Only Santa knows.

Disclosure: I do not own Blue Nile.

Blue Nile has been trading above its 20-day moving average and rising since September 11. These are bullish indicators.

The Moving Average Convergence Divergence (MACD) chart also shows that moving averages are trending higher. Additionally, the MACD is above the signal line, another bullish indicator.

Nile has been trading near the upper Bollinger Band, which means its price is getting high. It should be noted that this has been true for the last year and the price keeps going higher despite the proximity to the upper Band.

The Relative Strength Index chart just touched 70, which if it goes higher will indicate that the stock is tending to be overbought. However, if you can look at the Nile chart at http://stockcharts.com/h-sc/ui?s=nile&p=D&b=5&g=0&id=0, you see that it has stayed above 70 for quite a few weeks since mid April 2007.

Blue Nile (NILE), the online diamond/jewelry seller, who has been getting a lot of mention lately, looks bullish and could be an interesting play for the holidays. Its fundamentals and technicals look quite good.

Because Blue Nile doesn't hold gems in inventory until they have an order from an online customer (who only sees a photo of the product), Blue Nile’s Return on Investment is 30.7% while Tiffany’s is 11.6%.

Total revenue and earnings per share (EPS) have been increasing 38.9% and 19.8% respectively. Nile’s margins are 5.1% compared to Tiffany (TIF)'s of 10.1%. Nile hopes to attract more volume with lower prices for comparable quality. As for return on investment, Nile’s is 30.7% while Tif’s is 11.6%. This may be due to the fact that Nile does not hold gems in inventory until they have an order from an online customer who only sees a photo of the product. To compare Nile’s and Tif’s stock prices go to: http://finance.yahoo.com/charts#chart9:symbol=nile;range=6m;compare=tif

Nile’s Earnings will be announced on October 30. The mean of 13 analysts’ earnings estimates for Q3 is $.16 per share or $.07 less than Q2 when Blue Nile beat estimates by $.08. However, Q3 is normally the weakest quarter in the jewelry business. Q4 is the strongest of the year, why I am recommending this as a pre-holiday trade.

Nile had a Return on Equity (ROE) of 31.12% as of July 1, 2007. Tiffany’s ROE for the same period was 15.23%. Which is better? William O'Neil, publisher of Investor's Business Daily, found that winning stocks over the last 50 years had a ROE of 17% or more.

As for ownership, Nile's float, the total number of shares that the public can buy, is 135.36M shares. Analysts like to see 3-100M shares float because if a small number of shares floats, fewer shares have to be sold to push up the stock price. Institutional and mutual funds hold 111M shares or 91% of the Nile's float. There are only 12.18M for the non-institutional investors, impressive float statistics. The high percentage of institutional investors is also impressive.

At an EPS of $.87/share, for a stock that is trading at $100, the P/E or multiple is 115. This is quite high, but is eclipsed by other bullish indicators. Read on…

Diamonds are essentially commodity products - and Blue Nile diamonds are deeply discounted in comparison to their store-bought counterparts. Once you decide on certain characteristics like size (in carats), clarity, and level of inclusions (imperfections as rated by the Gemological Institute of America), one diamond is the same as any other.

Blue Nile customers are exempt from sales tax, if they order from an address outside of Washington state. On diamond purchases that can amount to many thousands of dollars, this is a significant advantage for Blue Nile.