Products made by luxury brand makers, and their stocks, tend to hold their value over the longer term due to limited production. A deep recession can pressure sales of many in these goods. But select companies selling products to the very upper end of the market are less affected. The desire by elite/uber-wealthy consumers and political elites to use wealth, influence or power – for exotic vacations or high end products can provide you with recession-proof stock performance.
The desire by such individuals to own prestigious products or élite services doesn’t dissipate compared to those who need to tighten their belts during recessions. As is said: The rich stay rich. Have-nots to have-yachts, as Pierre Poilievre put it. The wealthy (happily spending their long accumulated wealth) and political elites (happily spending your tax dollars) are not the ones running out of money in a recession. Today, I wanted to look at a few luxury-brand stocks selling to that upper-end consumer, and see if there are opportunities in them. We’ll look at how their stocks have fared in recession, and are faring now.
What to look for in a recession-resistant luxury stock
To start, there are many publicly listed stocks that are considered “luxury brand” companies. Many of these brands are not necessarily selling to upper end consumers. As such, they can be very cyclical. This, as “well-off”, but not “wealthy”, consumers back off on purchases during recession. For example, Ralph Lauren (RL-US), Tapestry, makers of Coach, Kate Spade New York and Stuart Weitzman (TPR-US), and Fossil (FOSL-US) don’t attract the “elite” consumer to their brands so much as upper-middle-class consumers. This shows in their charts. FOSL, below, epitomizes the volatility of that market.
We can see how the stock sunk in anticipation and reaction to economic recession in 2008 and 2020. The stock also felt pressure in the 2016-2018 era as newly elected President Donald Trump’s trade war with China began, alongside the slowdown in global economic growth and concern that the Federal Reserve was raising interest rates too quickly at that time.
So, which luxury stocks should an investor be looking at – assuming a recession is looming? Here are a few at the uber- upper-end of the consumer spectrum that may fit the bill.
Many luxury brand car makers are part of a larger group, and thus cannot be viewed in isolation in a single stock. For example, Porsche and Audi are intermingled within the greater Volkswagen group, so they can’t be isolated. As an aside, I expect to soon list my well loved and maintained low mileage 2003 Porsche 911 turbo X50 – enquire using the contact button if interested (note: its not at the elite, have-yacht price level!). Anyhow – Ferrari is at the very pointy end of the wealth market. The company sells their very pricey cars exclusively to customers with historical record of repeat purchases with them. That model seems to work, as the chart below suggests.
Note that, beyond interim corrections, the stock rose during the 2016-18 period, and 2020. As the current talk of recession looms, the stock is making new highs! This, as the company reports higher revenue and higher earnings per unit sold (an astounding $106k/ unit!!). Yikes!
Not so good for Mercedes and BMW
Mercedes Benz is listed as an OTC US stock under the ticker MBGYY. BMW is listed OTC as BMW. As noted above, the stocks that seem less volatile during recessions service the very high end of the wealth spectrum. Look around in the town you live in, and you will see plenty of BMW, Audi, and Mercedes cars. These are not exclusive cars to the elite, such as Ferrari. Not to say that they do not sell to the elite consumer. Witness the Mercedes Benz “Black” edition cars, and the BMW “M” cars. But their consumers largely lie within the “upper-middle” end of the spectrum, or wanna-be’s. As such, when recession arises, more modestly financed folks are inclined to move from a BMW 7-series into a less profitable car within the companies offerings (eg-BMW 3 or 5 series, or Mercedes A-class or CLA’s). Or to move into a domestic or Japanese offering. The chart below highlights this.
Upper end fashion purse and bag maker from France, LVMUY, is another brand that appeals to Hollywood types and the uber-elites of the world. These very high-end luxury products are exclusive to the buyer with deep pockets. No discount outlet-center sales for this company! Clearly, this is another stock that is less impacted by recessions.
One last stock with a reputation of selling to the elite. Kering – listed as PPRUY on the OTC market, makes uber-upper-end Gucci bags, belts, shoes, etc. Like Louis Vuitton, the Gucci brand, and others under the Kering umbrella, are coveted by the elite. The chart below illustrates strength during its short history – especially during periods of economic slowing.
Obviously, I haven’t listed all of the uber-elite public companies here. The concept that you want to be considering, if interested in the trade, is this: For recession resistant stocks, we should identify exclusive providers of these products and services that focus almost entirely on the pointy-end of the wealth curve. I’d be very interested in hearing your feedback if you are aware of stocks that might fit that niche leave your comments below!