By Al Emid  

Toronto – Canada



Photo of Gavin Graham



Investing In Shares Of Luxury Companies

A Different Set Of Considerations Than Investing In Their Offerings




Investing in luxury items known in the argot of investing as “alternative investments” ­­– has long been an acceptable means of diversifying an investment portfolio while demonstrating one’s wealth, status and exquisite taste.  The category includes items such as art, wine, cars, and jewelry, and can even include rare stamps and coins.

However, while these possessions make for solid investments, shares in the companies selling them are not as promising, according to Gavin Graham, London-based investment analyst and media commentator.  “This is probably not the best time (to buy shares in these companies),” he says during an interview.  “The reason I say this is that they are already very expensive.”


Graham explains that (at time of writing) shares in LVMH Moet Hennessy SE, often known as Louis Vuitton, Kering SA, owners of the Gucci brand, Yves St. Laurent SAS, and Tiffany & Co., typically trade at 25 times earnings, a high valuation, meaning that serious growth in share prices is unlikely within the foreseeable future.


This was not always the case.  The stock market pullback last fall provided a potentially profitable window, as luxury stocks plummeted along with other equities.  Those who invested at that time have probably seen share appreciation with the rebound since the sell-off, Graham explains.


Still, for those who would like to own shares in these corporations, some have unique qualities while others come with cautions.  In the unique quality category, Tiffany & Co. shares enjoy what investment analysts Morningstar Inc. call a “wide moat rating”.  Just as in medieval times, a wide moat prevented hostile forces from attacking a castle, a wide moat in investing means that a company’s positive attributes provide some protection from competition.  Tiffany’s moat consists of its instantly recognizable name, iconic collections, brand diversification, and strong control over distribution.


Porsche falls into a very cautionary category.  It is no longer a pure play on the Porsche auto company since it merged its auto business with Volkswagen in 2011 and is now a holding company.  It owns 31.5% of Volkswagen and 50.7% of the votes, leaving it exposed to continued fallout of the Volkswagen emissions scandal.  Moreover, with auto sales under pressure in the United States, China and Europe, earnings will likely decline moderately over the next 18 months, making the share price vulnerable, Graham explains.



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