Nowadays, finding a stock pick that is not AI-related is hard. This makes complete sense; AI has been the highest-growing sector in 2023, with its market size valued at USD 196.63 billion. This is expected to grow even more in the coming years, moving at an astonishing compound annual growth rate. The old rule of “don’t put all your eggs in one basket” comes to mind in situations like this, reminding us that diversification is the key to minimizing risks.
By spreading investments across different sectors or asset classes, investors can reduce the overall risk in their portfolios. For example, diversification helps to mitigate the negative event of AI being regulated, which could potentially result in a setback for AI growth and trigger a general sell-off.
When analyzing portfolios of top traders (you can read more about my methodology HERE), one stock that emerged as a common holding was LVMH stock, or LVMH Moët Hennessy Louis Vuitton SE to refer to it by its full name. This stock turned out to be the number one holding among top traders in terms of frequency and the percentage of the total portfolio composition that is not AI-related. I started looking into this, and convinced of its potential, I have decided to share it with you.
Branding is everything
LVMH, the world’s largest luxury company, is making significant efforts to maintain its position as a globally recognized brand. While expenditures on brand awareness initiatives might typically raise concerns for investors, particularly with brands like Louis Vuitton, these endeavors are expected to yield significant returns.
In the past, luxury brands tended to avoid widespread sporting events, preferring elite arenas such as golf, tennis, and Formula One. Nonetheless, with the rise of social media, athletes have attained unparalleled global sway, rendering these events too prominent to overlook. Indeed, with an estimated expenditure of around $162 million, LVMH has secured its position as the single largest local sponsor of Paris 2024.
Among its contributions, LVMH’s jeweler, Chaumet, is designing the medals for both the Olympics and Paralympics, while its fashion brand, Berluti, is responsible for crafting the uniforms to be showcased during a grand opening ceremony along the Seine. The presence of Moët Champagne and Hennessy cognac will be felt in every VIP suite, and Louis Vuitton leather goods will be a ubiquitous sight at the Games.
Louis Vuitton is also backing up athletes such as fencers and swimmers, and coupled with Dior’s endorsement of gymnasts and wheelchair tennis players, it underscores this changing landscape. Recently, it was announced that Léon Marchand – Léon Marchand, a prominent French swimmer who has achieved significant success in swimming, including setting records and winning medals at various championships – will represent Louis Vuitton as Ambassador for the Olympic Games Paris 2024.
Strong Growth and Financial Performance
In 2023, LVMH Moët Hennessy Louis Vuitton reported sales of €86.15 billion, surpassing analysts’ expectations of €85.74 billion. This notable 13% sales surge was primarily fueled by robust growth in its core fashion and leather-goods division. Despite facing challenges like a slowdown in organic sales growth compared to the prior year and economic uncertainties in China, the company expressed confidence as it embarked on the new year.
Different business units within LVMH experienced varying levels of growth, with selective retailing, including Sephora, leading the way with a substantial 25% increase in revenue. The company’s diverse portfolio, spanning sectors like watches and jewelry, perfumes and cosmetics, and wines and spirits, contributed to its overall performance.
For the fiscal year 2023, LVMH also reported a net profit of EUR15.17 billion. At its shareholders’ meeting, it proposed a dividend of EUR13 per share, marking an increase from EUR12 per share in the previous year. These figures underscore LVMH’s solid financial standing and strategic resilience in navigating market challenges.
LVMH’s Technical Analysis
Growth Projections: LVMH has demonstrated a remarkable expansion in recent years, boasting a diversified portfolio of brands spanning multiple luxury sectors. Market analysts anticipate a resurgence to its historical double-digit EPS growth trajectory.
Market Assessment: As reasonably valued, LVMH’s stock presents a forward dividend yield of 1.6% and is trading near its lowest price-to-earnings (P/E) ratio in the past decade.
Analyst Consensus: Wall Street analysts collectively rate LVMH as a “Moderate Buy,” based on a combination of 8 buy ratings and seven hold ratings.
Points of Caution: While LVMH’s performance appears solid, concerns about potential overvaluation are highlighted by its F Value Score and D VGM Score.
In light of the dominance of AI, one standout amidst this diversification strategy is LVMH, the world’s largest luxury company, which is making substantial efforts to uphold its esteemed position in the global market. Despite initial apprehensions about brand awareness expenditures, particularly with brands like Louis Vuitton, the company’s strategic initiatives are poised to yield significant returns, evident in its strong financial performance and growth trajectory.
LVMH’s bold sponsorship and involvement in events like the Paris 2024 Olympics showcase its commitment to brand visibility and resonance in the ever-evolving market landscape. LVMH’s varied portfolio and strong financial position make it a promising investment choice, backed by positive growth forecasts and market evaluations by analysts.