Why This Luxury Stock Will Outperform
Apr 13th 2012 2:18PM
Updated Apr 13th 2012 4:10PM
With more than 5,400 stocks to choose from, the universe of investment possibilities is enormous. You could get tips over the company water cooler or from Internet discussion boards. A better way might be to look for stocks based on what you already know and own.
Motley Fool CAPS helps you focus your energies by providing you with a personalized Stock of the Day. Using its supercomputer, it looks at stocks currently in your active pick list, stocks picked by highly rated players with lists similar to yours, industries in which you currently have active picks, and Saturn's orbit around the sun. Well, maybe not that last one -- but it targets areas in which you already have an interest.
By pairing up the opinions of some of the top investors in the CAPS community, CAPS provides you with a handful of companies on which to begin your own due diligence and research.
Based on my outperform rating on shoemaker Crocs, the CAPS supercomputer thought I also might be interested in luxury goods maker LVMH-Moet Hennessy Louis Vuitton (OTC: LVMUY), one of five Stocks of the Day it offered up for my consideration this week.
Let's see what the high-end accessories maker has going for it that might warrant an investment, even if CAPS hasn't yet picked it for you. Just remember, as smart as the CAPS algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions.
LVMH-Moet Hennessy Snapshot
|Sector||Textiles, apparel, and luxury goods|
|Market Cap||$17. 4 billion|
|Revenues, TTM||$30.7 billion|
|Return on Capital, TTM||12.1%|
|Dividend & Yield||NA/NA|
|Long-Term Debt||$5.2 billion|
|CAPS Rating (out of 5)||*****|
Source: Motley Fool CAPS; S&P Capital IQ. TTM = trailing 12 months. NA = not applicable.
Buy what you know
Luxury goods makers have been stocks to own over the past year, as Coach (NYS: COH) has soared 45% higher. Tiffany (NYS: TIF) and Luxottica (NYS: LUX) are outpacing the 5.5% rise in the S&P 500. Even Michael Kors (NAS: KORS) , only on the market since mid-December, has jumped 75%.
So rich has been the environment that others are looking to cash in as well. Luxury luggage maker Tumi is planning an IPO and Kors is doing a second IPO to allow its investors to cash out with a big payday. That kind of move, however, isn't exactly shareholder-friendly, as it dilutes current stock owners in favor of insiders.
Yet with strong results from these pricey accessories companies, investors are lapping it up. Sales at Coach were 16% higher in the second quarter while Kors saw an 8% jump in same-store sales. Tumi's revenues were up 31% in 2011, a notable achievement since a suitcase can start around $800.
It's in the bag
LVMH-Moet Hennessy Louis Vuitton also experienced a strong year last year with sales up almost 13% across its broad category of products. While I might associate it closely with Coach because of my wife's penchant for ogling its handbags and the fact that fashion and leather goods make up 37% of its revenues, the Moet and Hennessy in its name speaks to the diversity of offerings it has. At $4.5 billion in sales, it also makes up LVMH's third-largest operating segment.
Yet where all luxury retailers can probably agree is that China is going to be a key market for them. Coach recognized this early on (as did LVMH) and it has gone about establishing its brand as an important accessory for Chinese consumers. It's been experiencing double-digit growth there almost since its launch and it expects to hit $300 million in sales there. Conversely, Kors is essentially a complete unknown in China at the moment.
LVMH also has a strong presence in Asia (Japan is its own geographic segment as it is for Coach) since China represents the second-largest market for its wines and spirits group (Moet has had a presence there since 1843!). It describes the growth of its Fendi brand in China as nothing less than "remarkable."
I think what separates LVMH from its rivals is indeed the collection of brands it owns beyond the headliner names already mentioned. In wines and spirits it owns Dom Perignon and numerous high-end wines; in fashion and leather goods, it owns Donna Karan, Givenchy, and several brands directed at the male consumer (which Coach is now also targeting); in watches and jewelry it has TAG Heuer and Bulgari as well as the name most associated with diamonds, De Beers.
It's simply a powerhouse of a brand, and the breadth of its reach makes it worthy of attention. While it may seem incongruous that it was plastic-shoe maker Crocs that led the CAPS supercomputer to recommend the luxury retailer, having examined it more closely now, I'm rating LVMH to outperform the market. All 31 CAPS All-Stars rating it have similarly concurred on its future, but add it to your watchlist and let me know on the LVMH Moet Hennessy Louis Vuitton CAPS page or in the comments section below if you think it's better to be rich.
Even if LVMH doesn't pique your interest, there's one consumer-goods retailer you've heard of that's one to watch this earnings season. The Motley Fool featured it in its free report: "5 Stocks Investors Need to Watch This Earnings Season." We invite you to download a free copy; just click here.
At the time this
article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Coach. Motley Fool newsletter services have recommended buying puts on Tiffany. The Motley Fool has a disclosure policy.
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