Where are the best luxury picks? Look for the most solid balance sheets and the most prestigious brands.
2018 was contradictory and difficult year for luxury. At the same time some valuable and interesting lessons can be learned: as a matter of fact the first part of the year was indeed in general very positive for this segment of the market. Luxury stocks traded higher, along the rest of the market, on the back of an optimistic outlook, prevalent at the time. Notably intense was the rise of luxury giants listed in Paris, during a time when European equity as a whole already showed some cracks. That helped Paris Bourse to a significant over-performance comparing to many European peers.
Of course the picture drastically changed in the final months of the year when though a noticeable pattern of diversification among the performances of luxury stocks emerged. It is exactly what happened just a few weeks ago that can provide investors with valuable lessons for the immediate future: as a matter of fact it was still those French giants and some nimble, fast-growing Italian companies that did the best on the stock market last year, thanks mostly to the strength of their balance sheets and earnings.
The picture we can sketch out is one of increasing polarization, a polarization where the strongest companies,, with a portfolio of established, dominant premium brands are progressively leaving behind less endowed competitors, particularly in the aspirational crowd. What is interesting and reassuring for investors is that markets seem ready to pay a premium for members of the former group.
Brunello Cucinelli and Moncler are two perfect examples of what we mean: they’re two companies capable of growth even in an extremely adverse scenario for the Italian economy. An Italian economy that nowadays has been once again brought to the negative attentions of global markets as a possible source of financial instability.
Ferrari is another great case, a stock who did much better of the beleaguered auto sector. This niche of the market is facing now a difficult transition, even in the premium tier, after years of impressive growth.