Luxury Brands = Luxury Shares?

Expensive handbags and haute couture, big diamonds and golden watches, nice cars and delicious perfumes, who doesn't dream about luxury products? But are they really worth the money? Many economics will say 'no'. The investors amongst us may pose another question. What about the companies behind these products? Is it a good idea to buy their shares?

The middle classes in emerging markets like China, India and Russia are growing, and they have acquired a taste for the Western lifestyle too. More and more prosperous Asian tourists are purchasing luxury products during their stay in Europe. Of course, the companies behind these products seize their chance to penetrate these emerging markets too. But will this also result in a rise of their shares?

Let's take a look at three luxury good companies' shares and the recommendation of Bloomberg's brokers:

1. LVMW (€ 120)
   
   The LVMH group holds over 50 luxury brands. Henk Potts (equity analyst for Barclays Wealth) sees LVMH as a core holding in its sector, due to its high quality brands, strong management team, and significant earnings growth potential in addition to its recent acquisition of a stake in Hermès.
   
   Rating: buy 23, hold 10, sell 2.
   
   
2. BMW (€ 59)
   
   In 2009, Bayerische Motoren Werke (BMW) has sold almost as much units as in 2007 (before the financial crisis) and their global sales increased by 13% in the first half of 2010. It seems like the worst recession is behind for luxury car makers. According to Mr. Potts, the roll-out of the new series five has put BMW in a strong position.
   
   Rating: buy 28, hold 12, sell 4.
   
   
3. Polo Ralph Lauren ($ 110)
   
   In July, these shares have hit a low, but since then they have recovered by 40% due to increased global demand. Forbes blogger Zacks states they are "on sale" and recommends investors to buy them now.
   
   Rating: buy 5, hold 8, sell 0.

Other companies of luxury goods and their ratings:

1. Burberry: buy 3, hold 19, sell 3.
2. Mulberry: buy 2, hold 0, sell 0.
3. Richemont: buy 13, hold 14, sell 3.
4. Rolls-Royce: buy 10, hold 9, sell 7.
5. Tiffany's: buy 10, hold 9, sell 2.
6. Diageo: buy 20, hold 12, sell 3.
7. Inchcape: buy 7, hold 4, sell 3.

It seems like shares of luxury good companies are indeed doing rather well, with overall high 'buy' and/or 'hold' ratings, and low 'sell' ratings.

Nick Z.

Source: The Telegraph