7 luxury stocks you should buy now
The luxury-goods sector beat the broader market in 2012 with a rally of about 30%, and high-end consumer brands are poised to remain in the sweet spot in 2013.
With an improvement in leading macroeconomic indicators globally, especially in China, analysts say they expect customers world-wide to prioritize luxury products, and as valuations remain reasonable on most stocks in the sector, now is the time to dive into luxury.
“We think that the sector is a structural equity-market outperformer due to superior earnings growth and the combination of several driving forces,” analysts with Citigroup said in a note. They pointed to significant barriers to entry, pricing power and high exposure to global tourist flows and emerging markets as among the main forces.
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1. Compagnie Financiere Richemont SA
Performance in 2012 : Up 50%
Year-to-date performance: Up 7%
Key brands: Cartier, Montblanc, Chloe, IWC, Piaget, Vacheron Constantin, Baume & Mercier and Lancel
Why you should care: Richemont has a luxury portfolio more geared to recovery in China than do some competitors, along with a strong jewelry line that should continue to outperform. Analysts at Credit Suisse called the Swiss firm the “long-term industry winner” and lifted the stock to outperform from neutral. “Richemont should benefit from easing cost pressure for diamonds, precious materials and gold relative to the high price levels last fiscal year, we think,” they said.
Analysts at Citigroup further highlighted Richemont’s “superior earnings growth,” untapped potential for branded jewelry in Asia, and coherent and attractive brand portfolio.
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2. Swatch Group AG
Performance in 2012: Up 31%.
Year-to-date performance: Up 7.9%
Key brands: Breguet, Blancpain, Omega, Longines, Tissot and Rado.
Why you should care: The Swiss watch industry is highly exposed to China, prompting analysts at Vontobel to increase the outlook for the industry to 8% growth in 2013 from an earlier estimate of 6%.
With about 35% of sales coming from China, Swatch Group has large exposure to the region, and analysts expect the firm to benefit from the improved Chinese outlook. Additionally, analysts at Credit Suisse said Swatch Group remains one of their preferred ideas for 2013, with a strong a balance sheet and strong valuation.
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3. Tiffany & Co.
Performance in 2012: Down 13.5%
Year-to-date performance: Up 9.9%*
Key brands: Tiffany, mainly known for jewelry and watches, also sells accessories such as sunglasses, handbags and scarves, as well as other luxury items.
Why you should care: Tiffany & Co. is a flagship luxury brand with strong exposure to the U.S. and international markets. Analysts at Barclays believe the Asia-Pacific region could be key over the long term, while remaining comfortable that Tiffany will stay “very strong” on the domestic market.
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4. PPR SA
Performance in 2012: Up 27%
Year-to-date performance: Up 3.35%
Key brands: Gucci, Bottega Veneta, Yves Saint Laurent, Stella McCartney and Balenciaga
Why you should care: The stock has performed strongly in recent months as PPR has completed its first leg of re-rating and now moves into the second leg. This should help unlock the hidden value in the non-Gucci luxury brands, analysts at Citigroup said.
They see the brands delivering “exceptional growth and margin progress,” and expect them to account for over 50% of the luxury earnings growth in the next three years. “Altogether this coherent portfolio of brands is due to outperform the industry, on our estimates, which is not reflected in current valuation,” they said.
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5. Burberry Group PLC
Performance in 2012 : Up 3.5%
Year-to-date performance: Up 3.8%
Key brand: Burberry
Why you should care: Burberry was in for a tough ride in the back half of 2012, with management warning of slower growth. But the reduced sales expectations didn’t turn Burberry into a bad company overnight, and Credit Suisse remains positive on the U.K. trench coat and clothing company for 2013. Analysts pointed to a strong long-term brand, a solid grasp of the Chinese market and an improvement in average prices. Burberry is one of Credit Suisse’s preferred ideas.
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6. Coach Inc.
Performance in 2012: Down 9%
Year-to-date performance: Up 3.3%
Key brand: Coach makes purses, wallets, shoes, jewelry and watches.
Why you should care: The high-end leather-goods company proved with its first-fiscal-quarter results in October that it is strongly positioned in China, benefiting from its position as an accessible luxury brand with prices well below European peers. In fact, the recent success in the Chinese market boosted the U.S. brand to become the third-best selling brand in China last year. Analysts at Vontobel said Coach could be of interest because of its valuation and outlook.
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7. LVMH Moët Hennessy Louis Vuitton
Performance in 2012: Up 27%