"Luxury's 'Magnificent Seven': UBS names stocks worth buying on the downturn

The recovery in luxury sector stocks, which the market had been waiting for before the US and Israel's war with Iran, is likely to happen after all, according to investment bank UBS. It said there were buying opportunities in the sagging sector despite "significant investor anxiety" over the conflict in the Middle East. The bank recommended taking a closer look at the securities of the owner of Louis Vuitton and six other manufacturers.

UBS expects the luxury sector to recover from several years of decline despite the war in the Middle East. "We have yet to see signs of slowing demand, especially in Asia," Barron's quoted UBS analyst Zuzanna Pusch as saying in a March 30 note. - Against a backdrop of extremely negative market sentiment and undervalued valuations, we believe that even a moderate exceeding of expectations for Q1 results could be disproportionately rewarded by the market."

The selloff in stocks due to the war in Iran may have created buying opportunities ahead of the luxury manufacturers' first-quarter reporting season, Barron's noted. Analyst UBS lowered its first-quarter organic sales growth forecast for the sector by 1pc because of the war, but maintained most of its EPS targets, citing "a more favorable currency impact." The euro has weakened since the conflict began, which typically makes European companies' exports more competitive.

Pusch has identified seven companies that investors should pay attention to. UBS's main favorites in the luxury sector are LVMH, a producer of clothing, champagne and cognac, and Compagnie Financiere Richemont (which owns Cartier and Montblanc brands), a producer of watches and jewelry. The bank's target prices suggest a potential upside of about 40% for LVMH and 32% for Richemont relative to the market's closing prices on March 27.

Other luxury stocks with a "buy" recommendation from UBS include Ray-Ban brand owner EssilorLuxottica, supercar maker Ferrari, and fashion brands Brunello Cucinelli, Burberry and Ermenegildo Zegna.

Luxury stocks have been under pressure in recent years due to slowing sales growth in China, one of the key markets for many of the sector's leading brands. However, just when there are signs that Beijing is finally ready to stimulate consumer spending, the outbreak of war with Iran could trigger a surge in global inflation and collapse demand in another important market, the Middle East, Barron's explains. The STOXX Europe Luxury 10 Index, which tracks Europe's 10 largest luxury goods producers, is down 16% since Feb. 28. The fall in quotations has reduced the total market capitalization of major luxury companies by about $100 billion, with LVMH and Hermès losing more than $40 billion each, CNBC wrote on March 27.

This article was AI-translated and verified by a human editor