Luxury brands thrive on tourism and consumer optimism suggesting the strong economic recovery ahead will be a boon for luxury stocks.
Lockdowns and store closures led to billions of dollars in savings for many households. Research shows that total savings globally amounted to over a trillion dollars over the past year. Needless to say, independent and luxury brands likely will see a spike in sales as the economy reopens.
For investors, this signals a buying opportunity for stocks in this space. Adding to the allure of a successful comeback, the S&P Global Luxury Index that tracks luxury stocks has experienced a strong run in the last couple of years.
Although these investments are inherently more volatile than regular consumer goods, they tend to grow at an accelerated pace during periods of economic prosperity.
In that vein, the upcoming recovery makes luxury stocks a great buy. With plenty of pent-up cash, luxury brands are expected to enjoy their fair share of sales this year. Here’s a look at 3 luxury stocks to add to your portfolio:
Luxury Stocks: LVMH Moët Hennessy Louis Vuitton (LVMH)
LVMH stock has been on a steady incline in the last couple of months as consumer sales pick up in the U.S. and China.
In the first quarter of 2021, the French company reported a 32% increase in growth at $16.9 billion. Not only was this value higher than its 2020 revenue but also beat 2019’s reported revenue by 8%. The general optimism towards stocks in the sector pushed LVMH stock up nearly 30% year-to-date.
As the economy jumps into recovery mode, LVMH is poised to be a strong post-pandemic play. This is because the luxury giant has a strong exposure in China which was among the first nations to be hit by the pandemic. This also means that Asia was the first region to recover from the pandemic which was good news for LVMH’s sales.
Adding to the market trends that lay in the company’s favor is its strong portfolio of brands. LVHM’s recent acquisition with Tiffany’s and its other in-house brands like Christian Dior and Louis Vuitton have helped further the French retailer’s position in the luxury stocks market.
Estee Lauder Co (EL)
Another company that is set to benefit from demand recovery is Estee Lauder. The company is the manufacturer and marketer of a range of skincare, makeup and haircare products.
EL stock has already seen an impressive run this year, rising from $250 to $303. However, evidence points to greater upside for the company in the coming months, making it a good recovery play.
In its most recent earnings report, EL stock saw its revenue jump to $3.86 billion from $3.35 billion a year ago. Earnings came in at $456 million in Q3 versus -$6 million last year signaling a strong rebound. EPS was also up significantly from $-0.02 to $1.25.
The pandemic put a wrench in the company’s bottom line as sales of makeup and fragrances- two of the company’s core products came to a standstill.
As in-store shopping picks up and life returns to normal in the second half of the year, there is good reason to believe that Estee Lauder will add to its gains. Luxury stocks like this one are a strong recovery play worth buying into.
Luxury Stocks: Farfetch (FTCH)
While physical luxury stores will likely see a boost in sales in the coming months, it’s also worth looking at digital luxury companies like Farfetch.
Online shopping played a huge role in consumer spending during the pandemic and experts believe there will be permanent changes to the way we shop. This trend bodes well for the shopping platform Farfetch that reported some impressive first-quarter results despite the reopening of physical stores.
The company recorded revenue at $458 million, up from $331 million a year ago. Gross merchandise volume (GMV) surged 50% to $916 million from $611 million in Q1 of 2020.
As for guidance, Farfetch believes it will see more gains and expects to add 35% to 40% to its GMV. Despite the recent tech-selloff, ecommerce stocks are expected to emerge from the pandemic stronger than before.
This makes FTCH a growth stock worth holding on to for its long-term gains.
On the date of publication, the author held had no position in any of the stocks mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.
