The Wall Street Journal-20080116-Common Sense- Luxury Firms- Shares Join Post-Holiday Bargain Bin
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SmartMoney
The post-Christmas sale is in full swing.
Prices of most retail stocks got slashed last week after retailers reported their worst December results since 2002. So much for all those upbeat forecasts and tales of shoppers thronging the malls and ordering on Web sites. This week we learned that December retail sales actually declined 0.4%
Shares in high-end retailers, the ones whose customers were supposed to be immune from the woes afflicting the average U.S. consumer, were especially hard hit. Tiffany lowered its forecast and luxury bellwethers Nordstrom and Saks reported less-than-stellar results. At $35.66 a share yesterday, Tiffany was nearly $22 off its October peak.
True, high-end consumers may not be that concerned about gas prices. But they certainly do care about the value of their stock portfolios and real estate, both of which have been suffering.
But even as the subprime crisis morphed into a credit crunch, high- end consumers kept spending, as if denial somehow would stave off a slowdown that might actually affect them. Some of them are now in financial trouble. American Express reported that even high-end Platinum cardholders were falling into delinquency last month. Where are these shoppers cutting back on their shopping? Not at Wal-Mart or Costco.
But here's the thing about U.S. consumers, and especially the rich ones: Sooner or later, they always come back. If you look at long-term charts for these stocks, you'll see that most are not for the buy-and- hold investor.
Take Tiffany. Since 2000 it's traded in a range of about $20 to $57. Its major buying opportunities came in October 2001 (in the midst of the post-Sept. 11 recession) and October 2002 (the low point of the tech meltdown), when the stock was near $20. Nordstrom has performed much better over recent years, proving a better long-term holding. Still, the trading pattern until the latest bull market is pretty jagged, with the same buying opportunities in 2001 and 2002, when the stock was less than $10 (adjusted for splits). I wouldn't expect any of the luxury retailers to reach such low points again, but the record suggests that they bottom out at the deepest point in a recession.
Are we there yet? First, we don't even know if we're in a recession. Only with benefit of hindsight will we know the perfect time to buy these stocks. What we do know is they're substantially off their highs. Someday, in another bull market, when consumers are feeling flush and no one's wringing their hands over an imminent recession, they'll hit new highs again.
You can buy just about any luxury retailer in this environment (Coach and Polo Ralph Lauren are two others that just got downgraded). But a luxury purveyor I find intriguing and have wanted to own is LVMH Moet Hennessy. This Paris-based conglomerate owns more than 60 luxury brands (the initials stand for Louis Vuitton, the leather-goods maker, and Moet Hennessy, the champagne and cognac producer).
If you're going upscale, you can't get much loftier than this. I see it primarily as a play on growing wealth in emerging markets, and, as a French company, it's a play on a weak dollar. Let's hand it to the French: They wrote the book on luxury brands. Though LVMH isn't immune to the affluent U.S. market, its products have huge global appeal.
Here's a minor catch: LVMH primarily trades on the Paris CAC and is very thinly traded over-the-counter in the U.S. I wouldn't recommend something the average investor couldn't buy, so I placed an order for 100 shares, which was executed at $105 without any trouble. Though as a consumer I'm not inclined to pay a premium for status brands, I'd be happy to share some of the profits from those who do.
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James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.
