Luxury goods are often characterized as high-priced non-essential items that customers want but do not truly need. Such products oftentimes transmit the status of the owner since luxury goods are expensive and have a strong brand name attached to them.
New millionaires have been created as a result of the pandemic, the wealth of the upper classes has grown, and young millennials are also rising up, which altogether may increase luxury demand and consumption.
Luxury watches seem to be doing particularly well in terms of their performance as both a trendy accessory and a solid investment within the premium category. Namely, a select group of luxury timepieces have fared better than the S&P 500 index.
Picks for you
As a result of the fact that luxury watches had, up to this point, outperformed the market in 2022, Finbold has identified two luxury watch stocks to own during the summer of 2022.
The Swatch Group AG (OTCPK: SWGAY)
The Swatch Group is probably best known for its Swatch-branded watches, building a loyal following with its 18 different brands, which include Tissot, Omega, and Harry Winston, among others. Equally important, the company has seen a lot of value destruction during the Covid pandemic lockdowns, that decreased mobility and spending on luxury items.
Meanwhile, the latest earnings report shows a rebound in sales, as the company had a net sales increase of 30.7% year-on-year (YoY) to CHF 7.3 billion (~$7.6 billion), with an operating profit of CHF 1.02 billion (~$1.06 billion). The watches and jewelry segment had a robust operating margin of 17.7% for the entire year and 18.4% in the second half.
Further, the shares have lost over 22% year-to-date (YTD), dropping over 8% in the last month. Despite the robust earnings, the stock is down with the entire market as investors brace for a possible recession and a reduction in discretionary spending.
LVMH Moët Hennessy – Louis Vuitton (OTCPK: LVMHF)
LVMH is a holding company based in France and possibly the world’s leading luxury conglomerate, developing some of the most popular luxury goods in five segments. Namely, the Wines & Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, Selective Retailing, and Watches & Jewelry.
Some of the iconic brands under LVMH are Louis Vuitton, Bulgari, Dior, Kenzo, and Givenchy, among others. In its last earnings statement, the company showed €64.22 billion (~$66.99 billion) in revenue, a YoY increase of 43.8%.
Similar to SWGAY, LVMHF shares have lost 25.47% YTD, due to worries about the inflation and issues surrounding the war in Ukraine. The trading range in the past month was between $655 and $563, possibly offering solid entry points.
Luxury goods won’t go out of style any time soon, despite the worry surrounding discretionary spending. The above two companies represent the cream of the crop when it comes to luxury goods, which is evident when looking at the earnings numbers.
With the +20% drop in the stock price, investors looking to diversify into the luxury sector, have possibly been given solid entry positions for both of these companies. However, with the current macroeconomic backdrop, more volatility could be seen in share prices.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
