Luxury stocks set for ‘better performance ahead’ but recovery likely progressive, not linear: analysts
LVMH among names rated ‘buy’ by BofA; one of the sector’s cheapest stocks, it trades at a 25% discount to peers
Analysts are optimistic about the future of luxury stocks, despite a slow and uneven recovery in the sector. LVMH, the world's largest luxury goods company, is among the names rated as a 'buy' by Bank of America (BofA), trading at a 25% discount to its peers. European luxury stocks overtook the broader market by 9% and 12% on average after a decline in consumer confidence, according to JPMorgan Chase strategists led by Mislav Matejka.
They believe that luxury stocks could outperform in the coming months, as consumer confidence appears to be at its lowest point. Bank of America analysts are also optimistic, citing potential wealth effects and improved retail sales in Korea, which they now consider a growth engine. They expect Chinese demand to start improving as the economic environment stabilizes.
However, the recovery could be fragile, as recent weaker import data and fears of a slowdown in purchasing power due to increased taxation of offshore wealth in China have dampened sentiment. The luxury sector's valuations are now near their 10-year average, trading at a forward price-to-earnings ratio of about 25. Specific sectors within luxury, such as jewelry, are showing strong growth and pricing power, making companies like Richemont attractive.
Despite the cautious outlook, some analysts suggest that investors with no luxury exposure might want to consider accumulating, making luxury stocks an anti-consensus trade for long-term investors.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
