How You Can Shake Down the 1%
With all the talk about the growing monetary divide between the top 1% and the average working-class citizen, middle-class investors may feel like they're "playing the game" at an inherent disadvantage to the privileged class. What the individual investor may fail to realize is that their success can be your success, too, if only you invest where the uber-rich are spending their money.
Ride their (golden) coattails
When was the last time you went out and bought a $150 pair of Ray-Bans or a $500 handbag? It's a pretty rare splurge, right? Well, that's the beauty of being rich. Rare splurges can become routine shopping outings. Judging by the numbers the following mid- to high-end consumer goods companies are sporting, I'd say that's exactly what's been happening.
Sales Past 5 Years
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|Coach (NYS: COH)||2.2%||12.8%||72.8%||Add|
|Luxottica Group (NYS: LUX)||1.7%||5.9%||65.7%||Add|
|Tiffany & Co.||2.2%||7.3%||58.8%||Add|
|Fossil (NAS: FOSL)||N/A||16.2%||56.0%||Add|
|Vera Bradley (NAS: VRA)||N/A||19.5%||55.9%||Add|
|Michael Kors (NYS: KORS)||N/A||43.9%||55.6%||Add|
Anything stand out? The absurd margins, yes -- those are always nice to see. What about the sales growth for the past five years? Let's see, give me a minute. Five years ago -- that was -- one second... carry the one... 2007?! The all-time peak of U.S. economic prosperity? Before the massive crash the entire globe is still recovering from? That's right. All of these companies have grown their sales at healthy annual clips since then. That's remarkable.
Let's start with Coach, a premier brand that's done very well for itself over the years, even over the past five years. Its gross margins are out of this world. But there's an overlooked fact about Coach that doesn't appear on this table: its CEO's compensation. His name is Lew Frankfort, and Coach might not be able to make enough handbags to put this guy's money in. At the end of 2011, Foolish writer Nathan Alderman wrote a piece showing that since his company's IPO in 2000, Coach's stock has been more than a 26-bagger. But during that period, Lew's salary has gone up more than 40 times. I don't buy Coach bags, and I don't buy that Lew's compensation is good for shareholders, either.
The next company on the list, Luxottica Group, you may not have heard of, but I bet you've heard of some of its products. Based out of Italy, Luxottica is the proprietary manufacturer of a wide array of top-line sunglass brands like Chanel, Prada, Polo Ralph Lauren, Versace, Burberry, and others. The world's largest eyewear company, it owns Ray-Ban, Oakley, and Persol in its own product line. No wonder its margins are high.
Luxottica is a prime stock to consider if you think the top earners are going to continue trying to look better than everyone else. Not that these high-end brand names actually make you look better, but if the 1% thinks they do -- well, they're putting their money where their eyes are, and can follow their gaze straight to profits.
Fossil is best known as a watch company, but it also makes jewelry (like Tiffany), sunglasses, wallets, and other fashion products, competing directly with several other companies in the table. However, they're not all enemies. Lately, the company has benefited from a watch deal with Michael Kors. The first company we've considered without a dividend, Fossil's growth justifies its decision to reinvest profits in the company with its impressive 16% five-year sales growth clip.
Vera Bradley, the luxury handbag and accessories company, is another company that has seen rapidly growing sales in recent years. Sean Williams chose the company as his CAPScall of the Week, picking it to outperform. Sean cited an increasing percentage of sales generated from wholly owned and operated stores and e-commerce, which allow for higher margins.
But no company on the list benefits as much from upper-class excess than Michael Kors, whose recent earnings report bid shares more than 15% higher in a single day. The company is growing at an insane rate; quarterly earnings more than tripled year over year, with same-store sales popping 38% in North America and more than 20% in Europe. As the newcomer in the luxury fashion scene, investors will pay a premium for Michael Kors' growth, but they may be well-rewarded in years to come if the company continues its impressive upward trend. I think it will continue to thrive, which is why I've picked it to outperform on my CAPS page.
Level the playing field
While most people can't afford to buy the same accessories as Oprah Winfrey or Donald Trump, we can certainly invest in the companies whose products they buy. Gross income inequality doesn't sit well with many people. Thankfully, it doesn't have to. Investing in companies like the ones listed above is one strategy the common man can use to try to level the playing field.
That's far from the only way for the average investor to benefit from their perspective. Wall Street tends to ignore some very good opportunities that may not be prominent on its radar. Our special free report, "Middle-Class Millionaire-Makers: 3 Stocks Wall Street's Too Rich to Notice," examines several companies institutional investors are missing out on. Pick up your free copy by clicking here, and see for yourself what bigwig investors are ignoring.
The article How You Can Shake Down the 1% originally appeared on Fool.com.Fool contributor John Divine owns none of the stocks mentioned. Although he's been tempted, he's never spent his whole paycheck on a man-purse. You can follow him on Twitter @divinebizkid and on Motley Fool CAPS @TMFDivine.The Motley Fool owns shares of Fossil, Coach, and Tiffany. Motley Fool newsletter services have recommended buying shares of Fossil and Coach. Motley Fool newsletter services have recommended shorting Tiffany and Fossil. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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