With decades of success on Wall Street and a personal wealth valued at around $6.5 billion, legendary stock picker Ken Fisher obviously knows a thing or two about investing and which segments present the best opportunities right now.
The founder of Fisher Investments recently shared his insightful recommendation for sophisticated investors, suggesting that investing in luxury goods stocks could be a smart and profitable move. Fisher believes luxury goods companies have a unique ability to thrive even in tough economic times. These companies, known for their high-end brands and top-notch craftsmanship, tend to attract a dedicated clientele that values exclusivity and quality.
“Times are good for global luxury goods,” Fisher said. “High inflation hasn’t shaken their strong gross profit margins, which have remained above 55% since 2021.”
There are also other positive developments. Despite fears of a stalled economic recovery, big French and Swiss companies have seen robust sales in China, and as India’s wealth spreads, big global names are entering it too, sparking a “boom in expenditure on luxury goods”.
“Look around you in the Middle East and North Africa,” he adds. “Big global brands are growing everywhere, especially in the UAE.”
So with that in mind, we opened up the TipRanks database and got insights into two luxury product names favored by some Wall Street analysts, who both see plenty of room to maneuver in the coming months. Let’s see what makes them attractive investment choices right now.
Tapestry, Inc. (TRP)
The first name we will be looking at is Tapestry, a renowned luxury brand that has established itself as a global leader in the fashion and accessories industry. Tapestry operates three separate labels: Coach, Kate Spade New York and Stuart Weitzman. Each brand brings its own thing to the market, catering to different segments of its luxury clientele.
Flagship brand Coach combines classic elements with modern touches, appealing to men and women looking for stylish and functional pieces. Kate Spade New York, on the other hand, is known for its playful and dynamic approach, while Stuart Weitzman is recognized for its high-quality shoes.
Despite a slowdown in luxury goods purchases in the United States, boosted by sales in China up 20%, the company posted solid sales in its last quarterly report, for the third fiscal quarter of 2023 ( quarter of March). Overall revenue rose 5% year-over-year to $1.51 billion, while beating Street’s forecast of $70 million. Similarly on the earnings profile, EPS of $0.78 beat analysts’ forecast of $0.60.
The company also raised its outlook for the year. The company now expects revenue growth of 3% from 2% to 3% previously and expects earnings of $3.85 to $3.90 per share from $3.75 previously. Additionally, Tapestry remains on track to repurchase approximately $700 million of common stock in the current fiscal year.
All of the above makes Tapestry its “baby of the industry,” says Guggenheim analyst Robert Drbul.
“We believe the Coach brand’s strong profitability, experienced management, strong balance sheet and healthy brand equity deserve a place at the luxury and accessible luxury table,” the analyst explained. “We expect this management team to continue to execute on their FY25+ EPS target of $5.00+ and believe there is significant upside potential for the share price over at current levels. We remain confident in management’s ability to execute on its strategy, which we believe will result in significant multiple expansion. While we are mindful of recession-related concerns, we believe this team of management and this portfolio of brands have the ability to withstand downturns.”
Putting these thoughts into rankings and numbers, Drbul assesses that Tapestry shares a buy, backed by a price target of $60. This suggests that stocks will climb 38% over the next few months. (To see Drbul’s background, click here)
Most analysts agree with Drbul’s take. The stock boasts a strong buy consensus rating, based on 10 buys versus 3 takes. At $51.27, the average target leaves room for year-over-year gains of around 18%. As a bonus, Tapestry also pays a dividend. The current quarterly payout is $0.30 and yields 2.65%. (See Tapestry stock forecast)
Capri Holdings (IRCP)
We will stay in the same neighborhood for our next luxury brand. Capri Holdings is one of the world’s leading luxury fashion groups with three iconic brands operating under its umbrella: Michael Kors, Versace and Jimmy Choo. This company has also established a strong presence in the luxury fashion industry and is well known for its craftsmanship, glamor and innovation. Each brand in the portfolio has its own identity and offers a wide range of products, including clothing, accessories, footwear and fragrances.
That said, earnings fell across the board in the latest quarterly reading, for the fourth fiscal quarter of 2023 (March quarter). With its brands posting year-over-year declines, total revenue fell 10.1% to $1.34 billion. Still, the drop was expected on the street and the figure actually managed to exceed expectations of $60 million. At the other end of the spectrum, adjusted earnings per share of $0.97 met forecasts from forecasters.
Going forward, Capri expects F2024 annual revenue of around $5.7 billion, slightly below consensus at $5.73 billion. On the other hand, the estimated EPS of $6.40 is higher than the street forecast of $6.28.
Despite the success of the luxury brand segment this year, Capri stock was shut out of the rally and is down 36%. Nevertheless, following discussions with management, BMO analyst Simeon Siegel believes the valuation of the shares is far too low and that they offer good value at current levels.
“Our recent management meetings have covered topics such as buy and sell advice, pricing/GM, branding, inventory and capital allocation,” Siegel said. “Management has expressed confidence in the guidance provided with respect to self-help (staffing/product initiatives, etc.) and easing comparisons. CPRI is one of our best “guide-beaters” but, to be fair, their “repeat” guides have also suffered subsequent cuts. However, we believe this should not matter, as the actions are already assessing significant reductions/misses. We welcome management’s focus on maintaining brand equity, believe stocks are inexpensive, and reiterate our outperformance rating given the intrinsic value mismatch.
This outperform (i.e. buy) rating comes with a price target of $68, implying that the stock will post 84% growth over the one-year period. (To see Siegel’s track record, Click here)
Elsewhere on the street, the stock is picking up 9 buys and 6 more takes for a moderate buy consensus rating. Going through the average target of $50.69, a year from now, investors will pocket returns of 37%. (See CPRI inventory forecast)
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Disclaimer: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.