Daily Gains Letter

Luxury Brand Retail Stocks: All You Need to Know

By for Daily Gains Letter |

Luxury Brand Retail StocksStrangely, Americans are getting richer and poorer at the same time, and this is benefiting the luxury brand stocks. While the number of Americans requiring food stamps is at a staggering 48 million or so, at the other end of the spectrum, the rich are increasing their wealth to new record-highs at a rapid pace. This is what will help the luxury brand stocks—a widening income gap that’s seeing the rich rapidly becoming richer.

In 2013, there were about 9.63 million households with a net worth of at least $1.0 million, according to Spectrum Group. Given that the S&P 500 has gone up about 200% during this current bull market, it’s not surprising to see the rise of the wealthy. Add in the increase in home prices and real estate, and you have more wealth created since the economy tanked in 2008.

In reality, it has been one of the best five years for material wealth to rise due to the strong upward moves in both the stock market and the housing market, which were fueled by near-zero interest rates and the Federal Reserve’s aggressive and controversial quantitative easing strategy (which has been brought to a halt—at least for the time being).

So, here we are. Investors may not be rejoicing over the gains this year compared to some of the previous years, but the building up of capital continues, which is also a plus for the luxury brands.

The auto sector is sizzling again, but what’s interesting is the rise in the more expensive vehicle segment of the auto market. Classified as vehicles priced at more than $50,000, the number of sales is looking to top one million units in the U.S. this year, according to TrueCar. The sales growth in this segment surged 30.8% year-to-date to November.

Clearly, the more affluent groups have added money to spend. You will see this in the spending on non-essential goods and services, including travel expenses and personal goods—which means good things for luxury brand stocks.

Luxury Brand Stocks to Watch in 2015

In travel, luxury brand stocks in the hotel space come to mind as a possible play on the added spending, such as Hilton Worldwide Holdings Inc. (NYSE/HLT). You can also play the demand for travel via the airlines, which are also riding the wave of cheaper fuel costs. In this space, I like to watch United Continental Holdings, Inc. (NYSE/UAL) and JetBlue Airways Corporation (NASDAQ/JBLU).

In the luxury personal goods stocks, I expect companies like high-end jeweler Tiffany & Co. (NYSE/TIF) will continue to do well on the charts and reward shareholders. If you like $100,000 watches and pendants, this is the place for you to do some shopping! In the case of a leading stock like Tiffany & Co., with a stock price that’s at a high, investors may consider playing via call options.

In the luxury handbags and apparel area, the top player to watch is Michael Kors Holdings Limited (NYSE/KORS), which has overtaken Coach, Inc. (NYSE/COH). With a leading stock like Michael Kors, it’s best to look at the company on weakness, when it’s off from its high; this can offer a good investment opportunity at a lower price.

In the luxury department store stocks, one company to watch is Nordstrom, Inc. (NYSE/JWN). Nordstrom is estimated to grow its sales 7.4% in fiscal year 2015, followed by 7.7% in 2016, according to Thomson Financial. Nordstrom has also beaten consensus earnings-per-share (EPS) estimates in three of the last four quarters, so it offers a good example of the type of stock investors should seek.

Finally, in the small-cap luxury brand space, investors may want to watch a contrarian stock like Vera Bradley, Inc. (NASDAQ/VRA), which was started by two friends and was able to break into and become popular within the crowded handbags market.

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