With decades of success on Wall Street and a personal fortune worth about $6.5 billion, legendary stockpicker Ken Fisher obviously knows a thing or two about investing and which segments offer the best opportunities right now.
The Fisher Investments founder recently shared his insightful advice for savvy investors, hinting that investing in luxury goods stocks could be a smart and profitable move. Fisher believes luxury goods companies have a unique ability to thrive during tough economic times. Known for their premium brands and world-class craftsmanship, these companies typically attract a dedicated customer base that values exclusivity and quality.
“Times are good for global luxury goods,” Fisher said. “High inflation hasn't impacted their robust gross profit margins, which have exceeded 55 percent since 2021.”
There are other positive developments as well. Despite concerns about a stalled economic recovery, major French and Swiss companies have had solid sales in China, and as India's prosperity spreads, big global names are now making inroads, fueling a “luxury goods spending boom”. .
“Look around the Middle East and North Africa,” he adds. “The big global brands are expanding everywhere, especially in the United Arab Emirates.”
With that in mind, we opened up the TipRanks database and took a look at two luxury goods stocks that are popular with certain Wall Street analysts, who think they both have plenty of room to play in the coming months. Let's take a look at what makes them attractive investment options right now.
Tapestry, Inc. (TPR)
The first name we look at is Tapestry, a renowned luxury brand that has established itself as a global leader in the fashion and accessories industry. Tapestry operates three different labels: Coach, Kate Spade New York and Stuart Weitzman. Each brand launches its own product and serves different segments of its luxury consumer base.
Combining classic elements with modern touches, the flagship brand Coach appeals to both men and women looking for elegant and functional pieces. Kate Spade New York, on the other hand, is known for her playful and vibrant approach, while Stuart Weitzman is known for his quality footwear.
Despite a slowdown in luxury purchases in the U.S., boosted by a 20% increase in sales in China, the company delivered strong sales in its latest earnings report for the third fiscal quarter of 2023 (March quarter). Overall, revenue rose 5% year over year to $1.51 billion, beating Street's guidance by $70 million. Also on the profitability profile, earnings per share of $0.78 beat analysts' forecast of $0.60.
The company also raised its outlook for the fiscal year. The company is now expecting revenue growth of 3%, compared to a previous 2% to 3% increase, and expects earnings to be in the range of $3.85 to $3.90 per share, up from $3.75 previously. Additionally, Tapestry remains on track to repurchase approximately $700 million of common stock during the current fiscal year.
All of the above points to Tapestry being its “industry baby,” says Guggenheim analyst Robert Drbul.
“We believe that high profitability, experienced management, a strong balance sheet and healthy brand equity earn the Coach brand a place at the luxury and accessible luxury table,” stated the analyst. “We expect this management team to continue to deliver on their FY2020 EPS target of over $5.00 and believe the stock price can rise significantly from current levels. We remain confident that management can execute on its strategy, which we expect will result in a significant increase in multiples. While we are aware of recession concerns, we believe this management team and portfolio of brands have the ability to weather the downturn.”
Translating those thoughts into valuations and numbers, Drbul rates Tapestry stock as a Buy, backed by a $60 price target. This suggests shares are poised to surge 38% in the coming months. (To view Drbul's track record, click here)
Most analysts agree with Drbul's assessment. The stock receives a consensus rating of Buy Strong based on 10 Buy vs. 3 Hold. At $51.27, the average target has scope for ~18% one-year gains. As an added bonus, Tapestry also pays a dividend. The current quarterly payout is $0.30 and yields 2.65%. (See Tapestry Stock Forecast)
Capri Holdings (CPRI)
We will stay in the same environment for our next luxury brand name. Capri Holdings is a leading global fashion luxury group with three iconic brands under its umbrella: Michael Kors, Versace and Jimmy Choo. This company has also built a strong presence in the luxury fashion industry and is known for its craftsmanship, glamor and innovation. Each brand in the portfolio has its own identity and offers a wide range of products, including apparel, accessories, shoes and fragrances.
However, in the last quarterly forecast for the fourth financial quarter of 2023 (March quarter), sales fell across the board. As brands posted year-over-year declines, total sales fell 10.1% to $1.34 billion. Still, a drop was expected on the street, and the number actually surpassed expectations by $60 million. At the other end of the spectrum, adjusted earnings per share of $0.97 were in line with forecasters.
Going forward, Capri expects full-year F2024 sales to be about $5.7 billion, slightly below the consensus of $5.73 billion. On the other hand, the estimated earnings per share of $6.40 is ahead of the Street's forecast of $6.28.
Despite the success of the luxury brand segment this year, Capri stock has been left out of the rally and is down 36%. Still, after discussions with management, BMO analyst Simeon Siegel thinks the shares' valuation is way underpriced and believes they offer good value at current levels.
“Our recent management meetings have covered issues such as put and take guidance, pricing/GM, branding strategy, inventory and capital allocation,” Siegel said. “Management has expressed confidence in the self-help advice (human resources/product initiatives, etc.) and facilitation of comparisons.” CPRI is one of our best “guide-beaters,” but in fairness, their “repeated” guides in have been shortened as a result. However, we believe that shouldn't matter as stocks are already pricing in significant cuts/failures. We commend management's focus on maintaining brand equity, think the shares are cheap and reiterate our Outperform rating given the intrinsic discrepancy.”
That Outperform (i.e., Buy) rating comes with a price target of $68, which means the stock is poised to grow 84% over the course of a year. (To see Siegel's track record, Click here)
Elsewhere down the street, the stock receives another 9 buy and 6 hold ratings, yielding a consensus rating of Moderate Buy. Assuming an average target of $50.69, investors will see a 37% return in one year. (See CPRI Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.