Luxury Goods: How to Invest in the Finer Things
We’re feeling particularly opulent this week as we take a look at fancy stocks Oxford Industries, Hermes International and L’Occitane. Ooh la la…
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Bonjour mes amis, and welcome to another edition of Investing Intel from the team at ValueTheMarkets.
Across this newsletter you’ll find:
👉 Three stock insights
👉 A news roundup
👉 Investing signals
👉 Fear & Greed
👉 The finest content from ValueTheMarkets
👉 Key dates for your diary
👉 Some fun facts!
This week, we’re enjoying the finer things in life as we turn our attention to luxury goods. It’s an industry that encompasses fast cars, fashionable clothes, eccentric cosmetics and eye-wateringly expensive drinks.
The companies making these kinds of treats and extravagances can make for surprisingly good investments. Their affluent clientele means these outfits are often resistant to fluctuating macroeconomic conditions, while it also helps that they are often strongly established companies or brands which deal in high-margin goods.
So, which luxury goods stocks do we think are worth your time?
The Diversifier - Oxford Industries (NYSE: OXM)
Our first tip among these opulent outfits is Oxford Industries (NYSE: OXM), whose beach vibes might be the way to brighten up your portfolio.
This is the business behind well-known and high-quality fashion brands Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, Duck Head and The Beaufort Bonnet Company.
So, what is it that we like about Oxford Industries?
First off, it's key to note that this looks like a business on the rise. Its most recent earnings update, which covered the three months ended 29 October 2022, included record third-quarter revenues and gross margin.
What’s more, the company highlighted its confidence by hiking full-year guidance and there was growth across every department. The bulk of this growth came from Oxford Industries' behemoth: Tommy Bahama. This business unit saw a 20% increase in sales for the period to $178.6m, making up 57% of Oxford Industries’ sales.
The business is diversifying to lessen its reliance on Tommy Bahama though, with the period seeing the acquisition of Johnny Was. This newly included brand contributed sales of $22.7m after being snapped up on 19 September.
This sensible acquisition appears to be another reason to back the business.
Oxford Industries has also diversified beyond fashion – aspiring to open its own resort under the Hawaiian shirt-oriented Tommy Bahama brand in late 2023. It has already branched into hospitality with store-restaurant hybrid locations.
You might not expect a fashion brand to successfully run a restaurant, but the locations appear highly popular. For example, the company’s Honolulu location is ranked as the seventh-best restaurant in the city on TripAdvisor, beating more than 1,000 rivals.
Sales from these locations are significant and growing too, increasing by 17% in the most recent quarter to stand at $23m.
The fact that the business is moving aggressively into hospitality and enjoying growth and success is undoubtedly impressive. The move should insulate the company against hurdles that might otherwise have derailed its progress.
We like Oxford Industries because of the business’ impressive growth, strong product offering and ongoing diversification efforts. Who doesn’t want to invest in a business that peddles Hawaiian shirts? Funky.
The Juggernaut - Hermès International (OTCPK: HESAY)
The next step of our journey through luxury stocks takes us to France and Hermès International (OTCPK: HESAY).
This storied powerhouse of fashion was founded back in 1837 in Paris by German immigrant Thierry Hermès. But back then, fashion wasn’t even on the agenda. Instead, Thierry’s business started life making saddles and harnesses for horses.
On its transformation from dressing horses to dressing humans, Hermès introduced the zipper to France, made clothes for royalty and even included ostrich-skin jeans in its collections.
Today, the business’s wares include clothes, perfumes, homewares and more.
But it is handbags that Hermès is most famous for.
Everyone knows that high-end handbags can get pretty pricey. Hermès takes the cake in this department though, with consumers unlikely to get hold of one of the company’s purses for anything less than $1,500.
So why do we like this company’s pricey purses?
The past year has seen the stock gain some serious momentum, rising by more than 37% across the period. In fact, the stock’s only major interruption in years of steady growth was the bear market that struck so many share prices down in the autumn of 2021.
Hermès has since recovered to the heights it reached before that plunge, and the company’s underlying numbers indicate continued strength which could well send the share price up into the beyond.
So, where is this strength?
Well, the first sign of momentum is revenue growth of 29% to $11.6bn in 2022, while net profits jumped by more than a third to $3.4bn in the same period.
The business showed strength across geographies in this period, recording growth in every region. While growth was largest in the Americas, with sales rising by more than 46%, Asia is the region that makes the greatest contribution to Hermès’ total revenue.
The $6.7bn in revenue is more than half of the business’s total, and growth of 27% in the region looks like a solid result.
The emergence of China as a growing luxury goods market has strongly benefitted many companies. Key among this cadre is Hermès. With widespread Chinese COVID lockdowns dwindling, many parties expect a boost for luxury stocks in this key geography. With so much exposure to China, Hermès is well-placed to benefit.
To recap, we like Hermès for its strong share price growth, improving financial data and strong prospects in Asia. We might not be ready to shell out thousands of dollars on one of their handbags, but the stock seems well worth a look.
The Income Stock - L’Occitane (OTCPK: LCCTF)
We’re sticking in France for this next one. After all, it is the home of luxury goods. L’Occitane (OTCPK: LCCTF) is the third and final luxury stock to make its way into our crosshairs.
While Oxford Industries and Hermès are primarily concerned with sprucing up your outfits, L’Occitane is focused on your body. It’s a cosmetics and perfume specialist heralding from Provence in South-Eastern France.
The company’s recent third-quarter earnings demonstrate why we like this stock. Sales growth of 8% was achieved in the period despite macroeconomic issues covering the APAC region (L’Occitane’s biggest market), as the company’s new Sol de Janeiro brand brought in $64.2m as it smashed its own targets.
While key markets like China and Japan have seen sales efforts hampered by COVID-19, it appears this could be less of a problem in the coming months. This could boost the company’s results further, as well as offer an opportunity to launch new products in the region.
Overall sales have been diversified away from the company’s core L’Occitane en Provence brand, with ELEMIS and Sol de Janeiro now each accounting for more than 10% of its net sales. The APAC region could prove to be fertile ground for these two already successful brands.
Indeed, the company’s H1 earnings call saw the company’s executive director, Andre Hoffman, announce that the company intends to launch its Sol de Janeiro and Grown Alchemist brands in China in 2023.
Success there could be massive for the business.
It’s also worth looking at the H1 results for L’Occitane’s net sales figures, which climbed by more than 29% to $900.5m. This gives the business a return on equity of more than 18%, painting a picture of a very solid business despite its macro difficulties.
Another factor is the company’s dividend. L’Occitane’s forecasted dividend yield of 2.71% is strong for the luxury goods industry and offers investors the chance to enjoy income while also backing a stock with real growth potential.
There has been some recent stickiness, however. The business has attracted bad press with its attitude to the Russian conflict with Ukraine. Unlike many other Western businesses, L’Occitane declined to shutter its operations in Russia in response to the invasion, before back-pedalling on the decision in May 2022.
Additionally, January 2021 saw the company’s US business unit file for chapter 11 bankruptcy, with COVID-related difficulties cited. However, the business has since emerged from the restructuring process, emerging with 133 brick-and-mortar boutique stores.
Despite these bumps in the road, we like the stock for its strong financials, dividend income and expansion prospects.
News in Brief
Tiking Clok? Social media giant TikTok and other Chinese tech giants could soon find themselves banned from the US under upcoming legislation. Senate Intelligence Committee Chairman Mark Warner told Fox News he intends to introduce a bill to allow the banning of foreign technologies later this week.
Care Package. Friday saw the Biden Administration announce a new $400m security assistance package for Ukraine. The news came as fighting intensifies around the town of Bakhmut, where Ukrainian forces are doggedly holding off a Russian offensive.
What’s Amiss With the Swiss? One of Credit Suisse’s most high-profile investors has sold its entire holding in the troubled banking giant. Harris Associates, once the holder of a 10% interest in the company, has backed away, with its lead stock picker noting in a Financial Times interview that other European competitors are better placed to succeed.
Investing Signals
This section uses under-the-radar data to point out some of the stock market’s hottest movers and shakers. As it’s our theme, we’re kicking things off with an examination of luxury stocks by various metrics.
🤑 Are you a fan of income? If so, it’s worth knowing that data from CompaniesMarketcap shows the industry’s top stocks by dividend yield are L’Occitane (OTCPK: LCCTF), Pandora (CPH: PNDORA), Nordstrom (NYSE: JWN), Chow Tai Fook (HKG: 1929) and Kering (OTCPK: PPRUF).
🤔 P/E ratio is often used to identify undervalued stocks, as it tells investors about a stock’s price relative to its earnings. Topping the list here are Farfetch (NYSE: FTCH), Nordstrom (NYSE: JWN), Signet Jewellers (NYSE: SIG), Rajesh Exports (NSEI: RAJESHEXPO) and the aforementioned L’Occitane (OTCPK: LCCTF).
🧐 Operating margin tells investors how much a company makes per dollar of sales after operating costs are extracted. Leading the line by this measure are Hermes (OTCPK: HESAY), Farfetch (NYSE: FTCH), LVMH (OTCPK: LVMHF), Dior (OTCPK: CHDRY) and Kering (OTCPK: PPRUF).
Looking beyond luxury, there’s some more interesting intel out there. Let’s get stuck in:
🎂 These stocks are selling like hotcakes! The top traded stocks by volume over the last session were Exela Technologies (NASDAQ: XELA), ObsEva (NASDAQ: OBSV), Tesla (NASDAQ: TSLA), Mullen Automotive (NASDAQ: MULN) and Troika Media Group (NASDAQ: TRKA).
💻 There are echoes of this activity on social media. In the last 24 hours, the top trending stock on Reddit is Troika Media Group (NASDAQ: TRKA), which has seen its share price more than double in the last month in another of the social media site’s notorious short squeezes. Other top Reddit trenders include C3.ai (NYSE: AI), Tesla (NASDAQ: TSLA) and Bed Bath & Beyond (NASDAQ: BBBY).
Fear & Greed
The Fear and Greed Index is a measure of stock market sentiment calculated by CNN Business using seven measures including market momentum, market volatility, and safe haven demand. It’s meant to shed light on the emotions currently driving the market, giving you insight into how traders are making decisions. Remember, traders are humans, not robots.
As you can see below, sentiment is just nearing the edge of ‘Greed’. This indicates that stock prices are close to being driven upwards by bullish trader behaviour.
More Hot Content from ValueTheMarkets
Potential NASDAQ and NYSE listings this week include a baby products retailer, an oil and gas services provider touting green credentials and a Chinese AI company.
Earnings Preview: UNFI, CPB, DKS, CASY, THO
This week’s company earnings include United Natural Foods (NYSE: UNFI), Campbell Soup Company (NYSE: CPB), Dick's Sporting Goods Inc (NYSE: DKS), Casey's General Stores Inc (NASDAQ: CASY), and Thor Industries (NYSE: THO).
Unicoin Annual 2023 Shareholders Update
The Unicoin leadership team presents investors with an opportunity to gain exclusive insights into the company's plans for the year ahead.
Dates in The Diary
Tuesday 7th – Federal Reserve Monetary Policy Testimony (Day One)
Wednesday 8th – Federal Reserve Monetary Policy Testimony (Day Two) / US Import & Export Data (January)
Thursday 9th – US Initial Jobless Claims (4 March)
Friday 10th – US Non-Farm Payrolls (February) / US Unemployment Data (February)
Fun Fact – Raven Thorogood III: A Master Trader
There was a strange face among Wall Street’s finest performers in 1999. Raven Thorogood III achieved gains of 213% and performed better than thousands of professional rivals.
It’s safe to say that Raven was a breath of fresh air.
That’s because Raven, the United States’ 22nd-best money manager that year, didn’t wear a suit and tie. She had never received any training in economics. Plus, she was only six years old.
Oh, and did we mention that she was also a chimpanzee?
That’s right, one of the most successful traders in the country was an untrained ape. Did Raven at least diligently research the stocks which she chose?
No.
In fact, she chose a slew of internet-based businesses by chucking darts at a list of more than 130 companies. For those interested, she backed the likes of NetSpeak, OnSale and AudioHighway. For investors who wanted in on the chimp’s impressive return, there was MonkeyDex.
Unfortunately, the MonkeyDex and all of the stocks picked by Raven are worthless today, having been wiped out by the spectacular bursting of the dot-com bubble. Professional traders can take comfort from the fact they were not bested by a chimp over the long term.
Even so, the tale of Raven Thorogood III probably makes you think about all that effort you put into building your portfolio!
Until Next Time
Many thanks for taking the time to enjoy Investing Intel today, we hope you’ve enjoyed our insights and are looking forward to more in the week ahead.
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Au revoir!