Deluxe Discounts Forged in the Downturn

China slowdown, euro crisis turning these stocks into bargains

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Deluxe Discounts Forged in the Downturn

The crisis in Europe has made the luxury goods sector all the more interesting. Most of the biggest names in high-end luxury goods are European firms, and with the eurozone mired in crisis, we’re getting buying opportunities we might not see again for a long time.

One of my favorites is French luxury conglomerate LVMH (PINK:LVMUY), the world’s largest luxury group by sales and the owner of Louis Vuitton and Fendi handbags, Dom Pérignon champagne, Hennessy cognac and Tag Heuer watches, among many other brands. Think of LVMH as a one-stop shop for gaudy baubles and expensive booze.

LVMH has been one of the rare success stories in Europe in recent years, and it’s easy enough to understand why. While the company is domiciled in Europe, its primary clients are not. Forty percent of the group’s sales come from emerging markets, led by China.

Mercedes-Benz manufacturer Daimler AG (PINK:DDAIF) also is an excellent play on Chinese growth. China is the biggest market for the Mercedes S-class and the biggest engine of the company’s growth. However, I consider Daimler’s business to be riskier than that of LVMH. After all, a big spender is likely to postpone the purchase of a $100,000 car long before he postpones the purchase of a $1,000 handbag for his wife. Still, at 7 times earnings and boasting a dividend yield of 6%, Daimler is a risk worth taking.

Investors wanting to stay closer to home could consider Beam, Inc. (NYSE:BEAM), the distiller of Jim Beam and Maker’s Mark bourbon whiskeys and the wildly popular Skinnygirl cocktails, among others. Beam is a smaller rival to international spirits juggernaut Diageo (NYSE:DEO), and its brands lack some of Diageo’s cachet. Still, Beam is attractive as a recent spinoff from Fortune Brands, and it stands to grow at a significantly faster pace in the years ahead.

I consider both spirits stocks to be excellent holdings for the next 12 to 24 months, as they sit at the intersection of two macro themes I follow.

This first, of course, is the rise of the emerging-market consumer. Diageo gets nearly 40% of its revenues from emerging markets, and I expect that percentage to rise along with the incomes of emerging-market consumers.

Secondly, “sin stocks” tend to be highly recession-resistant, and booze companies are no exception. This has helped Diageo to become an “International Dividend Achiever,” meaning that it has raised its dividend for a minimum of five consecutive years.

Diageo actually has done much better than that — it has raised its dividend every year for well over a decade. Beam still is a new company and lacks a substantial dividend history, but I expect it to reward investors for years to come with a rising cash payout.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter, and the chief investment officer of investments firm Sizemore Capital Management. Disclosures: LVMUY, DDAIF, DEO and BEAM are held by Sizemore Capital clients. Sign up for a FREE copy of his new special report: “Top 3 ETFs for Dividend-Hungry Investors.”


Article printed from InvestorPlace Media, http://investorplace.com/2012/05/deluxe-discounts-forged-in-the-downturn-beam-lvmuy-deo-ddaif/.

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