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BofA Picks Top Luxury Stocks

The pandemic has created a new billionaire every 30 hours, and the inequality of income distribution is increasing.
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This is an age of unequal distribution of income.

The left-leaning Institute for Policy Studies has released a study examining compensation over the past year at the 300 publicly-held U.S. companies that had the lowest median wages in 2020.

The average gap between CEO and median worker pay in the study jumped to 670 to 1, up from 604 to 1 in 2020. And 49 companies had ratios above 1,000 to 1.

Meanwhile, the pandemic has created a new billionaire every 30 hours, according to Oxfam.

Bank of America analysts note the “growing wealth of the upper class, the great transfer of wealth to young millennials, and the previous middle class joining the luxury category.”

This will “increase future luxury demand and consumption,” they said. “Inequality is still expanding, and this remains a headwind and an untapped demographic category for luxury demand.”

BofA analysts cited two companies that will benefit from the luxury trend.

LVMH, based in Paris.

“LVMH  (LVMHF)  is the world leader in luxury goods, generating more than 64 billion euros (US$73 billion as of Dec. 31) in 2021,” the analysts said.

“Leather Goods & Fashion [including Louis Vuitton, Fendi] and Wines & Spirits [including Hennessy, Moet & Chandon] are the group's most important divisions and account for about 85% of group EBIT [earnings before interest and taxes]. Watches & Jewelry represent another 10%. The company also has Perfumes & Cosmetics and Selective Retailing divisions.

“LVMH has the second largest share in luxury jewelry, thanks to its acquisition of Tiffany,” the analysts said. “Favorable wealth dynamics globally, i.e. accumulation of wealth for high-end consumers and expansion of the middle class (emerging-markets and China-driven), will directly benefit LVMH as a market leader.”

Further, “LVMH revenue expanded more than 6x since 2000 …, which makes LVMH a true compounder,” the analysts said.

Richemont, based in Geneva, Switzerland.

“Richemont  (CFRUY)  is a market leader in the luxury jewelry market thanks to its Jewelry Maisons portfolio and the brand strength of Cartier, Van Cleef and Buccellati,” BofA analysts said. “Jewelry is the most attractive segment within the luxury goods space in terms of segmental dynamics.”

The analysts said that stems from:

1) “Global dynamics around wealth creation;

2) “More innovation, driving volume growth;

3) “Renewed pricing power;

4) “Online creating a white space opportunity to reach customers who don't live close to a store;

5) “Higher self-purchases, particularly from women; and

6) “High jewelry recovery.”

Further, “we think that wealth accumulation within the (ultra)-high-net-worth and affluent middle-class population supports a faster shift from non-luxury jewelry into luxury jewelry, [and] also into branded jewelry, which directly benefits Richemont as a No. 1 player.”