Last year, as the coronavirus’ impact on the economy and the necessity of shutdowns became clear, the Federal Reserve aggressively slashed interest rates to zero and injected trillions of liquidity into financial markets to ensure that the banks remained functioning and solvent. In hindsight, it’s clear that this has been one of the primary drivers of the ensuing bull market in nearly all types of assets.
From the March 2020 lows, the S&P 500 is up more than 100%, home prices according to the Case-Shiller Index are up 19%, and the commodities index is up 47%. There have even been spillover effects into more speculative asset classes like cryptocurrencies and collectibles. Although certain parts of the economy continue to struggle as evidenced by a recent Pew poll showing that 5.6% of Americans are behind a cumulative $20 billion on rent.
Given the continued economic pain, it’s likely that the Federal Reserve will be very slow in removing its accommodation. Two beneficiaries of these circumstances are the 1% who own 40% of the country’s wealth and luxury stocks which thrive when wealthy people are feeling flush and willing to spend more extravagantly. Therefore, investors should consider buying Movado Group Inc. (MOV), Signet Jewelers Limited Common Shares (SIG), and Hugo Boss AG (BOSSY).
Movado Group Inc. (MOV)
Movado designs, sources, markets, and distributes watches worldwide. It operates in two segments, Watch and Accessory Brands, and Company Stores. The company has a number of well-known brands including Movado, Concord, Ebel, Olivia Burton, and MVMT. It also has licensed brands like Coach, Tommy Hilfiger, HUGO BOSS, Lacoste, and Scuderia Ferrari.
It operates 47 retail locations, but its products are mainly found in jewelry store chains, department stores, independent regional jewelers, licensors’ retail stores, and a network of independent distributors. It’s recently seen impressive growth in its e-commerce division.
MOV’s path has been similar to many high-end retailers as sales plummeted in 2020 but have roared back in 2021. This is evident in its recent earnings report in which the company posted an operating profit of $24 million compared to an $8 million loss in the same quarter last year. Revenue was 131% higher as well. Both figures were above expectations.
If we dig deeper into the earnings report, there’s even more strength beyond earnings and revenue. The company had growth across all its brands at the high-end and low-end. Further, gross margins expanded by 5.4% which is another positive development and a sign that the company is able to raise prices. Like many retailers, it maintained its momentum in e-commerce sales, while in-person retail exploded due to pent-up demand.
Despite these strong earnings reports, many are skeptical that this momentum can be continued. This is reflected in its low price-to-earnings ratio of 12 which is significantly cheaper than the market average. Essentially, some believe that retail sales at these levels are not sustainable due to stimulus checks and the pent-up demand following the pandemic.
However, this could be a source of more upside if MOV can maintain its current trajectory. The POWR Ratings are also bullish on the stock as it’s rated an A which equates to a Strong Buy. A-rated stocks have posted an average annual performance of 30.7% which compares favorably to the S&P 500’s annual gain of 7.1%. To see more of MOV’s POWR Ratings, click here.
Signet Jewelers Limited Common Shares (SIG)
SIG sells diamond jewelry, watches, and other products through three segments — North America; International; and Other. It is the world’s largest retailer of diamond jewelry and one of the largest jewelry retailers in the world. Some of its most well-known brands are Kay Jewelers, Zales, Jared, H.Samuel, Ernest Jones, Peoples, Piercing Pagoda, Rocksbox Jewelry, and JamesAllen.com.
The company has been one of the best-performing stocks in the market. Not surprising given the pent-up demand for weddings and other celebrations in addition to the bull market in asset prices.
In its last quarter, SIG’s sales rose 98.2% to $1.7 billion, with eCommerce sales increasing 110.3%. Non-GAAP operating income increased substantially from a loss last year to $168.90 million, while EPS came in at $2.23, a 240.3% gain. This means SIG has an attractive P/E of 15.6.
Another big driver for the stock is the outsourcing of its credit services to more focus on its core business. This led to a flurry of upgrades from credit analysts and should lower its borrowing costs and improve the balance sheet.
Analysts expect SIG’s revenues to increase by 27.8% to $6.7 billion for the full year. This earnings season has featured many retailers hiking their in the current year. A $7.09 consensus EPS estimate for the current year indicates a 236% increase from the same period last year. In addition, the company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters.
SIG’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
In terms of component grades, SIG has an A for Growth which isn’t surprising considering that its sales grew 98% and earnings by 151% last year. To see more of SIG’s POWR Ratings, click here.
Hugo Boss AG (BOSSY)
BOSSY is based in Germany but is known all over the world for its premium and high-quality shoes, clothes, and accessories. Since, the company sells business, casual and evening wear, shoes and accessories, and other licensed products, its revenue understandably plunged during the pandemic as offices were shut down and so many gatherings were canceled.
Now, it’s benefiting from the opposite end of this phenomenon. Despite flare ups in case counts throughout the year, offices are gradually reopening and gatherings are beginning once again. This, in combination with pent-up demand for shopping, is leading to an explosion in sales. Further, the strength in asset markets is also supportive of increased spending on luxury goods.
Recently, BOSSY unveiled a new growth strategy – “CLAIM 5” – with the goal of doubling sales for $4.7 billion by the year 2026. Part of this strategy is increasing traffic and spending on its e-commerce platform. This would result in higher margins, increased customer loyalty, and higher rates of retention.
In its last quarter, BOSSY’s revenue increased by 128.7% to $740.2 million. Gross profit came in at $453.05 million, a 156.7% gain. Net income came in at $29.4 million which was substantially better than its $218.9 million loss last year. Next quarter, BOSSY is forecast to grow revenues by 30%, although there have been some indications that apparel spending is declining with the recent bump in coronavirus cases due to the Delta Variant.
BOSSY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our POWR Ratings system. B-rated stocks have posted an average annual performance of 19.7%. BOSSY also has strong grades in many components including an A for Quality. Click here to see the complete POWR Ratings for BOSSY.
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SIG shares were trading at $81.25 per share on Wednesday afternoon, up $2.05 (+2.59%). Year-to-date, SIG has gained 198.77%, versus a 21.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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