The very wealthiest may have an array of experts and tools to help them deftly manage their funds, yet many still follow the most basic tried-and-true stock picking advice: Invest in what you know.
“A lot of ultrahigh-net-worth investors are fans of Warren Buffett and like the idea of buying stocks of companies whose products they use consistently,” said Vance Barse, financial advisor at Your Dedicated Fiduciary, part of Commonwealth Financial Network. “It’s very common for them to ask for our insight on those names,” he added.
The stocks of high-end brands are somewhat insulated from economic downturns because those with expendable income stay invested and continue to purchase clothes, accessories, or home decor, for example, from these elite names. “The income inequality that we see, especially post pandemic, has continued to grow, so luxury brands are still performing better than a lot of other retailers as inflation has hurt consumers,” said Andrew Wang, managing partner at Runnymede Capital Management. “[Wealthy] consumers are still buying luxury brands from handbags to apparel to wines and spirits,” he added.
Yet Wang also warned that investors should not assume every luxury stock is a worthwhile investment. “It’s easy to generalize and say anything ‘luxury’ should be better, because if there’s a recession, they tend to be a little bit more recession resistant. Yet it depends [on the specific] stock,” he explained. He noted that sales of luxury homes, for example, dropped 45% during the three months ended in January 2023, according to Redfin. “The U.S. housing market is slowing from higher mortgage rates, and luxury home sales are seeing the worst of it. For investors, it pays to do your research and pick your entry points,” he said.
These analyst-approved picks are favorites of wealthy investors:
1. LVMH Moët Hennessy Louis Vuitton (LVMUY)
This massive luxury conglomerate, which owns a host of brands beyond Louis Vuitton and Hennessy including Tiffany & Co., Fendi, and Christian Dior, became the most highly valued luxury brand firm in the world in April after it amassed a market cap of nearly $500 billion. Bernard Arnault, who heads the firm, surpassed Elon Musk to become the richest person in the world with a net worth of $198 billion. Shares of LVMH have returned on average nearly 20% annually for shareholders in the past 10 years.
Wang pointed to the firm’s globally diverse customer base, strong sales numbers, pricing power, and tailwinds from consumer demand in China as boons for the stock’s continued success. As of June 22, year to date, the stock is up 26%—trading at $922. The average price target from 29 analyst ratings is $952, and the overwhelming consensus gave the firm a buy rating.
2. Hermès (HESAY)
This luxe brand best known for its exclusive and sought-after handbags is benefiting from the wealthy spending increasingly on fashion. As the company expands globally, its sales growth has jumped. In the first quarter of 2023, the company’s sales in the U.S. grew 19%, and its sales in Europe increased about 21%.
A review of analyst ratings of the stock gave its prospects an overweight rating and a price target of $211. Shares currently trade at $209. “Wealthy people are still spending money; not spending on luxury homes or boats, but fashion remains in high demand,” explained Wang, who recommended the stock. HESAY is a dividend paying stock; its last dividend was $1.05 per share paid out to investors in late April of this year. As of June 22, year to date, the stock is up 35%.
3. Kering (PPRUY)
The French company operates luxury fashion and accessory brands including Saint Laurent, Gucci, and Bottega Veneta. Wang pointed to Gucci as the brand that he sees being particularly key to serving the company well: “The new creative director [Sabato De Sarno] could be a catalyst as product hits in the fall,” explained Wang. De Sarno is expected to shake up the strategy of the fashion house and is garnering excitement over his first collection coming out in September. “The company should do well over a multiyear period,” Wang added.
An assessment of analyst ratings for PPRUY gives the stock an overweight rating. As of June 22, the stock is up 8% year to date and trades at $56.
4. MGM Resorts International (MGM)
This casino holdings company operates casinos and hotels around the world from Las Vegas to Macau, China, and through such divisions as Las Vegas strip resorts, regional operations, and MGM China. According to Wang, upcoming events could prove a boon for MGM, which profits from betting on the NFL Draft, the Super Bowl, and Formula 1 racing. The company has a market value of $15.62 billion.
MGM currently trades at $42 per share on the New York Stock Exchange. According to an assessment of 18 analyst ratings, the firm on average has an overweight ranking and a price target of $57.
5. Restoration Hardware (RH)
According to Wang, this high-end furniture retailer is a bargain right now, and has been unfairly punished by falling home sales and renovations. Wang points to the firm’s strong balance sheet and stock buyback program as positive indicators, as well as its international expansion, which could bring in about $20 billion to $25 billion in global revenue long term. “When the business [of home decoration] turns, this home furnishings and luxury lifestyle brand is well positioned,” Wang said.
A review of 21 analyst ratings of the stock finds an average rating of overweight. The stock currently trades at $292, and shares are up 15% year to date.
6. L’Oréal (LRLCY)
Equities portfolio manager Nick Frelinghuysen at Chilton Trust pointed to cosmetics and skin care company L’Oréal as his pick for a luxury stock that could give investors a good run. He cited company’s breadth of offerings, high repurchase rate, and brand loyalty as bellwethers of continued sales growth. He also noted that the company has strong free cash flow and invests growing operating margins back into the business. “We feel the brand shows numerous secular trends that transcend any short duration recession,” Frelinghuysen explained. Year to date, the stock is up 24%.
7. Estée Lauder (EL)
The makeup and skin care pick that operates a slew of high-end brands has seen a rough year so far in the market as it plummeted 22%, but analysts think that investors who jump in now could be getting the retailer at a bargain. The company, which operates brands such as Clinique, Bobbi Brown, La Mer, and Jo Malone London, is a consumer giant. In a review of 21 analyst ratings, the stock was overall given an overweight rating and an average price target of $236. The company‘s stock currently trades at $195.
If you’re looking to spread out your holdings, the S&P Global Luxury Index is up 15% this year as of June, and many of its top holdings are included in this list.
Either way, even as inflation persists, these stocks have a customer base that cares more about prestige than prices.
