Follow the Rich with These 2 Stocks

09/22/2011 3:49 pm EST

Focus: STOCKS

Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

High-end consumers continue to drive strong revenue growth in the luxury-goods market, and these two stocks enjoy the most benefit, says Elliott Gue of Personal Finance in this exclusive interview with MoneyShow.com.

Elliott, everyone’s moaning and groaning about the American economy, and with good reason. Unemployment is high, consumer sentiment figures have suddenly really plummeted, and there’s just really a lot of negativity out there. But there is one segment of the economy that’s very quietly doing very nicely, thank you. Which segment is that?

That would be the high-end consumer.

Yes?

Absolutely. If you look at the data, it’s interesting. If you look, for example, at the unemployment data, whereas the overall unemployment rate is sort of above 9%, for people with a college education it’s down around 4.5%.

If you look at the average wealthier consumer, they don’t spend very much of their income percentage-wise on, say, oil. Compared to an average or a lower-income consumer.

So higher gas prices don’t affect them as much as it would, say, a blue-collar worker.

Absolutely.

Who shops at Wal-Mart?

Absolutely. I mean if it’s only about 0.5% of your disposable income, then it’s not going to really have much of an effect on your spending behavior, even if oil prices go up double.

Right, right. These people have spent very well. I mean, the retailers like Tiffany (TIF) and some of the others, Coach (COH), some of them just rallied gigantically in the first two years of this bull market, which we don’t know whether it’s over or not but assuming it continues.

Which companies would you look at to really profit from the high end consumer?

Well actually, Tiffany’s, which you just mentioned, is one of my favorites. In their recent earnings report, they actually reported that sales of everything were very strong both in the US and in their international stores.

They are actually expanding their store count both internationally and domestically, except for their cheapest items. The really expensive stuff is selling very well. Their cheaper, sort of what they call “aspirational goods”—stuff that’s aimed at a little bit lower-income consumer, little younger consumer...that’s the only stuff that’s not selling well. But interestingly, of course, the profit margins on that higher and more expensive stuff is much better.

Much better.

So they’re actually seeing the most profitable part of their business grow very, very quickly.

And is that TIF as the ticker on that?

TIF is the ticker symbol. Yes, it did rally a lot obviously when the market was strong, but with the volatility we saw in the summer and August, it’s come down a lot off its highs.

Can you give us one more?

Well, you also mentioned Coach, which is another one of my favorites. I’ve been writing it up a lot recently.

I’m reading your mind I guess...or reading your newsletter.

There you go. They’re obviously doing leather goods. Now they also do some things that might be considered more aspirational, for a little bit lower market...not quite up to your $1,000 Gucci handbag. But their sales have actually been very, very solid.

They’re also finding a great market overseas, where they didn’t traditionally have much of a market at all. I think Coach, is, their sales have been very good. Again, they’re appealing to that same consumer who has money to spend.

People tend to look at the American consumer as sort of this monolithic being. The reality is there are different parts. There are different American consumers. Wealthier individuals are doing very, very well right now relative to pretty much everyone else.

Well I know also BMW (BAMXF) in particular is doing phenomenally all over the world. We all know that they don’t sell cheap cars.

That’s exactly right. I mean, it’s true. Also if you look abroad, a lot of these brands like Tiffany’s, Coach...they’re kind of status symbols in a country like China.

Tiffany’s most profitable stores are its stores in China and its sales in China, because they look at those Western luxury brands, Western luxury goods as being really status symbols. As they become wealthier, that’s the kind of thing that they want to buy.

Their sales abroad are doing very well as well, so it’s not just the US consumer, the high-end US consumer, the high-end European consumer, but it’s also these emerging markets. That’s going to be a big component of their growth going forward.

Do you own either of these two stocks personally or professionally?

I do own Tiffany’s.

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