What’s the difference between a BMW and a porcupine?
In the BMW, the prick’s on the inside.
My uncle told me this crass joke before handing over the keys to a fire-engine red BMW 525i that he had just sold me. I was a kid, fresh out of college, and for whatever reason, decided I would be super cool if I drove a beemer around – even if it had 250,000 miles on it.
And you know what? I did look pretty cool. When I dropped by the gas station to fill the tank, I noticed more young ladies giving me a look, other fellows stopping to ask about the handling, and a general aura of success that it lent me.
Not a bad-looking ride, I must say.
However, it was all a mirage, and I had to sell it after two trips to the mechanic. I was quickly reminded how rich I wasn’t. I was too young and naive to know that owning a high-octane European car requires basic maintenance that is almost always over a grand. After paying more for repairs than the car cost me, I gently bowed out of the luxury car market.
Oh well, it was cool while it lasted – and I looked rich for a while.
But the lesson here is that rich people can afford the little things they want, even if the economy is slowing down. And that leads to great investment opportunities in luxury goods that won’t feel the pain of an otherwise belt-tightening population.
Dress For the Job You Want, Not the Job You Have
You may have heard the news that Elon Musk has become the first person in history to lose $200 billion. That dropped him from the coveted spot of “World’s Richest Man”. But who do you think replaced him?
Commerce overlord and space-obsessed nemesis Jeffrey Bezos?
Perennial rich tech dweeb Bill Gates?
The prophet of profits, Warren Buffett?
None of the above…
The correct answer is Bernard Jean Étienne Arnault. It’s a perfectly fitting name for a wildly rich French guy, a celebrated fine art collector, or a notorious jewel thief.
He’s at least two of those things, and I won’t bother speculating on cat burglarizing abilities. Bernard is worth over $207 billion, compared to Musk’s pittance of $151 billion. Elon is quite a few jewel heists away from catching up at this point.
Arnault is the billionaire co-founder and chairman of LVMH — Moët Hennessy Louis Vuitton — (MC.PA), the biggest luxury goods company in the world. They sell all things extravagant: champagne, cognac, fancy handbags, expensive watches, perfumes, and the mother of all rich people treasures: yachts.
Do yourself a favor and soak up the opulence:
People buying this stuff aren't worried about inflation and recession.
The “Parisian Kingpin,” as Forbes has elegantly referred to him, has overseen an empire of riches from luxury brands like Louis Vuitton, Tiffany, Bulgari, and Christian Dior.
In 2022, the company's revenue hit $75.9 billion. Shares in LVMH hit a record high of $805 this year. That brings the luxury company’s market cap to $492 billion for the first time. These results make the company the most valuable in Europe and the 14th most valuable company in the world. LVMH has also benefited from the reopening of China this year. China produces many of these goods, and there is a little-known fact that Asian countries spend about a 2% chunk of the world’s $372 billion luxury goods market.
Companies like LVMH need the country to both produce and buy their wares.
Last year, South Koreans spent $16.8 billion, or about $325 per capita, on personal luxury goods. That's a 24% increase in what we all considered a bad year. The Chinese and the U.S. spent $55 and $280, respectively, per capita, if you ask Morgan Stanley.
Now, you can buy shares of LVMH. However, the company trades on the Paris Stock Exchange, so you’d have to buy them through an American depository receipt (ADR), which offers U.S. investors the ability to buy non-U.S. stocks without the complexities of dealing in foreign stock markets. If you have a broker or investment manager with global capabilities, they can buy you European shares. I recommend it because it helps with liquidity problems from smaller OTC listings.
But thankfully, I have a much easier option for U.S. investors in the luxury market. And this company actually pays a solid dividend to boot.
They may be short on champagne and yachts, but they supply luxury goods like purses, perfumes, and sunglasses to the “want to be rich” crowd of global consumers. The company also trades on the NYSE and offers a very nice dividend.
Tapestry, Inc. (NYSE: TPR)
You may not have heard of the name Tapestry, but if you’ve even sniffed the rich life, you’ve certainly heard of Coach and Kate Spade.
They sell items that rich people just put their money into – to reckon back to my intro story – to display that they have money to do so. We’re talking designer purses like the now iconic Sam bag that retails for as much as $300 and have been purchased at twice that on the resell market.
Tapestry operates in three segments: Coach, Kate Spade, and Stuart Weitzman. It offers women's accessories, including handbags, wallets, wristlets, and cosmetic cases. It also sells novelty accessories (like a pizza-shaped bag that retails for $428), address books, time management and travel accessories, sketchbooks, key rings, and charms.
These are what you call luxury goods for people that can (and those who wish they could) afford them.
The company also sells business cases, computer bags, and other rich people's accessories like shoes, watches, perfumes, and other items highlighted on wealthy people’s Instagram pages.
The company is cranking and sending back its spoils to its investors…
Tapestry just bought back 3 million shares for an average of $33.83, which is a nice discount to today's $43 share price. The company also announced that it will return $1 billion to shareholders in 2023 through dividends and share repurchases.
TPR is up 14.78% so far this year:
Overall, luxury stocks look well-positioned to handle whatever economic conditions 2023 throws at them. Tapestry looks like the best of the bunch for a long-term investment, with a nice 2.8% dividend to boot. I’m looking at solid revenue growth, the above-mentioned returns to shareholders, and an attractive valuation.
Revenue in the luxury goods market pushed past $312
Jimmy Mengel Follow me on Twitter @mengeled.
The Profit Sector
Follow me on Twitter @mengeled.