European equities have experienced significant volatility since May. In the past, such a wide divergence between the EU and US economy has set the stage for improvement, suggests global investing specialist Yiannis Mostrous in Capitalist Times.
The second-quarter brought an uptick in corporate earnings, while European demand should improve once the ECB implements quantitative easing.
In anticipation of the ECB’s bond-buying program, investors looking to add exposure to Europe’s recovery should focus on financials, materials, industrials, and other cyclical sectors.
LVMH Moet Hennessy Louis Vuitton (LVMHF) (LVMUY) remains our favorite way to gain exposure to the luxury end of the consumer-discretionary market, a segment that we expect to close the performance gap with defensive names that trade at frothy valuations.
The purveyor of all manner of luxury goods posted weak first-half results, with sales growth slowing to 3% from 6% in the opening six months of 2013.
Much of this weakness stemmed from weak sales in Asia. Currency headwinds also compressed the company’s first-half margins by 150 basis points relative to the prior year.
On the plus side, the company’s Louis Vuitton brand maintained its roughly 40% profit margins, thanks to the introduction of a new line of products and a renewed focus on controlling costs.
The recent acquisitions of luxury brands Bulgari and Loro Piana for EUR6 billion add more firepower to the company’s arsenal of smaller brands (about 8% of overall net income).
With an average product price of EUR2200, Loro Piana is LVMH Moet Hennessy Louis Vuitton’s most exclusive brand and is expected to surpass EUR1 billion in sales and grow its profit margins by about 25%.
Uniting an impressive array of luxury brands under a single corporate banner, LVMH Moet Hennessy Louis Vuitton remains our top play on the rising number of high-net-worth individuals worldwide.
The stock rates a buy up to EUR150.00 on its local exchange. The company’s ADR is a buy up to US$42.00.
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