Investors have a new post-pandemic trend to consider when picking luxury stocks: “revenge spending.” The concept first made an appearance in the fashion industry bible, WWD, in March.

GQ may have described it best: “After a year spent mostly indoors, with no parties to attend or hot restaurants to crowd into, people are ready to refresh their wardrobes, to avenge what they were denied, in particular life’s luxurious dignities,” observed staff writer Rachel Tashjian.

Frustrations brought on by lock-downs have sparked a retail resurgence that is seen by stock pros as likely to benefit luxury stocks.

One of those pros that I follow is Swetha Ramachandran, who leads luxury stocks coverage for GAM Investments’ European equity team. I caught up with her last week as she was briefing clients on the 30 brands that she’s following now.

Among the key macro factors that have her attention is the rebound of the world’s two largest economies — China and the U.S. — whose consumers dominate about 60% of the global spend on luxury goods.

After a close look at those 30 stocks that she’s following, here are five that seem to have the most potential as consumers begin to take their “revenge”:

  • Brown-Forman (NYSE:BF-B)
  • Farfetch (NYSE:FTCH)
  • The TJX Companies (NYSE:TJX)
  • Hilton Worldwide Holdings (NYSE:HLT)

Revenge Spending Stocks: Brown-Forman (BF-B)

Shares of Brown-Forman stand to benefit from what the CEO of Italian drinks maker Campari (OTCMKTS:DVDCF), Robert Kunze-Concewitz, calls “revenge convivality,” Ramachandran said. That is, as part of the return to normal, people are going out to bars, having parties and are overall ready for a good time.

“Frustrated by a long period of lockdown, people have a strong, strong urge and need to meet their family and friends. That’s feeding into increased sales of spirits,” Kunze-Concewitz said in May.

However, that effect has yet to show in the price of BF-B stock, which is down about 9% year to date, while the Invesco Dynamic Food & Beverage ETF (NYSEARCA:PBJ) is up 15.2%.

Brown-Forman disappointed investors last month when it reported Q4 FY21 earnings per share of 25 cents, a 6% YoY decline and a nickel short of the consensus estimate of 18 analysts.

Part of what’s expected to fuel growth for Brown-Forman is the “spirit premiumization trend,” as consumers trade up in their beverage tastes. It anticipates underlying sales and operating income growth in mid-single-digits for fiscal 2022, with the reopening of bars and restaurants (on-premise channel) and a pick-up in tourism.

The company’s brands include top-selling whiskey Jack Daniels and Finlandia vodka. Volume growth hit 12% in fiscal 2021, aided by new flavors introduced for ready-to-drink cocktails and Jack Daniel’s.

Farfetch (FTCH)

Farfetch is a play on digital luxury retailing that is poised to gain even as shoppers return to physical stores.

It seems to be a prime example of what the GAM analyst describes as “e-commerce in luxury is a journey, not a destination.”

“Companies need to constantly up the ante on digital story-telling and engagement with consumers, especially younger consumers,” she said. That’s something FTCH stock investor should have their eyes on.

In May, the company posted first-quarter 2021 revenue of $458 million, up from $331 million a year ago. Gross merchandise volume (GMV) skyrocketed 50% to $916 million from $611 million in Q1 of 2020. The all-important digital platform order contribution margin improved by 100 basis points year-over-year to 33%.

Farfetch sees more gains and expects to add 35% to 40% to its GMV. Despite the recent tech-selloff, e-commerce stocks, generally, are expected to see a very strong second half of 2021.

Revenge Spending Stocks: The TJX Companies (TJX)

Seeing TJX Companies on analyst Ramachandran’s luxury stocks list, I thought there’d been an error.

No mistake, she told me, TJX stock is on her radar because, “it caters to the luxury consumer that prefers to shop brands ‘off-price’ in a physical environment.” Management refers to it as offering shoppers a “treasure-hunting” experience.

Not only that, but the retailer is also a “trusted partner for brands to clear excess stock,” Ramachandran said. Those goods are sold through the company’s 4,572 stores, as of the end of fiscal 2021 (February), under the T.J. Maxx, T.K. Maxx, Marshalls, HomeGoods, Winners, Homesense, Winners and Sierra banners.

In late May, TJX reinstated its stock buyback program, with plans to repurchase as much as $1.25 billion in shares through Jan. 29, 2022.

Assuming that as America returns to normal, at current prices you’re paying about 24.7 times forward earnings with a dividend that yields just 1.5%.

Hilton Worldwide Holdings (HLT)

Hotelier Hilton Worldwide Holdings made the GAM analyst’s list primarily for its sizeable U.S. properties portfolio. Just as Vail Resorts (NYSE:MTN) is a play on luxury travel staying relatively close to home, Hilton’s hotels are a top choice of where to stay on those travels. Nearly 75% of the company’s adjusted EBITDA for FY 2019 was from U.S. properties.

UBS (NYSE:UBS) recently increased its price target for the stock to $136 with improving recovery visibility. That 7.9% upside seems very likely with the gradual opening of key economies globally and accelerated vaccination drive.

As a long-term holding, HLT stock will be fueled in the future with the addition of nearly 400,000 new rooms it has in its plans, with more than half of those already under construction. Those new rooms should add $800 million to adjusted EBITDA. The company’s pipeline will also ensure that revenue is more diversified in the coming years, with 35% of new construction in Asia Pacific.

Hilton is significantly leveraged, as InvestorPlace contributor Faisal Humayun observed in May. While net-debt-to-EBITDA was 11.2x, as of Q1 2021, he believes the company’s healthy cash flows and extended debt maturity profile will mitigate any leverage concerns.

Revenge Spending Stocks: Dufry (DUFRY)

Duty-free stores operator Dufry would seem like a counter-intuitive investment at this time, considering that international travel remains muted. But considering its low valuation and its potential for when more inter-continental flying resumes, it could be a good time to get in on a value.

DUFRY stock sank to a three-year low of $2.40 a share at the start of the pandemic in early March 2020. Shares began to climb back by October, then set out on a roller-coaster ride into 2021, now down nearly 16% year-to-date.

Yet, Dufry is the world’s biggest duty-free stores operator with its 2,300-plus shops taking about a 12%-13% share of an otherwise-fragmented global travel retail market, including around 20% in airport retail.

At the end of April, more than 1,400 shops were operating, representing about 70% in sales capacity compared to full-year 2019. The Swiss company said in late May that it expects to be at 75% of sales capacity by the end of this month as vaccination campaigns and an easing of restrictions were beginning to boost foreign travel, a trend it expected to continue.

“Customer behavior indicates continued demand for travel and travel retail, and we are well-positioned to accelerate sales with further reopenings,” said CEO Julian Diaz in a statement. “The close relationship with our landlords, suppliers, employees and shareholders continues to be a valuable support during the recovery.”

The company is looking at 2019 as the benchmark year for its post-pandemic comeback. The DUFRY stock price in 2019 ranged from $11.10 a share to $7.76. It was recently trading at $5.69 a share.

Sentiment among the dozen analysts who follow the company shows a slight improvement in recent weeks, as one shifted from a “hold” rating to a “buy.”

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