Interactive Investor

Two posh stocks we can all buy

12th January 2022 08:55

Rodney Hobson from interactive investor

Some sectors are largely unaffected by economic cycles, generating profits for the company and shareholders through thick and thin. Our overseas investing expert likes this pair.

Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.

Pandemic restrictions around the world have made investing in retailers much more risky. But then again there are companies such as Kering SA (EURONEXT:KER) and LVMH Moet Hennessy Louis Vuitton SE (EURONEXT:MC) selling luxury goods that are in demand among people with money whatever obstacles life throws up.

Kering is most famous for its flagship brand Gucci, which accounts for 57% of revenue and 80% of profit, and it also owns Yves Saint Laurent, Alexander McQueen and Balenciaga. The whole group performed remarkably well in the first nine months of the year despite the impact of rising cases of Covid-19 on sales in the lucrative Asia Pacific region. 

Following a strong first half, revenue showed a 13% rise to €4.2 billion in the third quarter to the end of September, with all parts of the business comfortably ahead of the same three months of 2019 before the pandemic struck.

All parts of the globe put in commendable performances, with strong momentum in North America and improvements in Europe and Japan despite an absence of tourists who form a vital part of the group’s clientele.

Pessimists will worry that sales growth was already slowing in 2019 ahead of the pandemic and that progress has continued to be slower than it was a few years ago. Nonetheless, the overwhelming majority of companies of any description would be ecstatic with that kind of growth. 

Source: interactive investor. Past performance is no guide to future performance

Investor sentiment going into 2022 will depend heavily on trading during the key Christmas period. We should know more by the end of this month but there are high hopes for Gucci’s new Aria collection. 

I suggested buying Kering at up to €475 in July 2019 after a decline from a peak of €537 three months earlier, with the proviso that cautious investors might like to wait to see if the shares slipped back further. Caution won on that occasion, with the price bottoming out at €426 a few weeks later.

The pandemic halted the subsequent recovery at €600 and all the gains made in the meantime were quickly dissipated, but Kering is now flying high above €700, where the yield has been reduced to only 1.12%. Even so, UBS, Barclays HSBC and DZ Bank have all recently raised their ratings on the stock.

Like Kering, LVMH boasted double-digit sales growth in the third quarter, actually improving considerably on a strong performance in the first half. Revenue rose a remarkable 20% in the July-September quarter compared with the same period in 2019, and for the first nine months the comparison shows an 11% improvement, with the US and Asia faring particularly well.

LVMH offers a wider range of goods than Kering’s mainly fashion lines, including leather, watches, jewellery, wine and cosmetics as well as owning 5,000 retail outlets around the globe. Fashion and leather are the fastest growing parts of the group, while watches and jewellery are benefiting from the consolidation of Tiffany & Co into the empire plus a new production line for Bvlgari.  

Source: interactive investor. Past performance is no guide to future performance

The shares have performed strongly over the past five years, rising from €200 to €700, where the yield is 1%. Fourth-quarter results should soon indicate that this faith is justified. 

Hobson’s Choice: Kering’s shares raced ahead of themselves last year but are back to a more reasonable level. Existing shareholders should hold on; prospective buyers may do better to see if the price slips further, as is likely. Below €650 would be a big buying opportunity.

Nor is there any reason for LVMH shareholders to cash in at this stage, although again the shares look fully priced for now. There looks to be a floor around €665, so any chance to buy near that level is worth considering.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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