Buy These Stocks if You Believe the Rich Get Richer
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are many possible explanations for the phenomenon, but the fact is that the rich are getting richer; not only in terms of their rising income, but also in relationship to the percentage of national income they receive. Data from different sources indicates that inequality among households in the US has been increasing since the late 1970s, and the country has now the highest level of inequality among developed nations.
High growth emerging countries like China and India are also experiencing the rise of a tremendously rich elite class among their population. Countries in which most of the people used to be poor before globalization are showing a reduction in poverty levels, but at the same time their incorporation into the capitalist system is producing an enormously rich affluent class.
There are many plausible causes for this trend; economic and technological factors are probably having a considerable effect. As countries like the US move into the post industrial era, certain specialized skills and education become highly demanded and even required to fit into the economic system. On the other hand, many lower skilled industrial jobs are moving to emerging countries where they are available for a lower salary.
Other factors like the decline of unions and different taxations policies can also contribute to the explanation of this phenomenon but, regardless of its causes, it doesn´t look like things are going to change anytime soon. Movements like Occupy Wall Street or Warren Buffett´s proposition to increase taxes on the wealthiest families are a clear sign of the times in which the rich keep getting richer.
As investors this has important implications when selecting stocks for the long term, companies that target the richer segments of the population are probably going to show stronger growth and better resilience through the economic cycle. If you want to get into the group of people that are rich and getting richer, maybe you could take a look at some companies that benefit from this trend.
Consider Tiffany (NYSE: TIF) for example, the company has disappointed investors in the last months since guidance has been lower than expected, but management is still expecting more than a 20% increase in sales for fiscal 2011. Keeping in mind that metal prices are quite elevated and that there is still a lot of uncertainty in the economic scenario, things could be much worse for this exclusive brand.
One company that has been immune to economic jitters so far is Coach (NYSE: COH), this retailer of high end bags and accessories reported a 14% increase in sales and 18% growth in earnings per share for the last quarter. Both North America and China regions showed strong growth in comparable store sales and the company has reported strong profit margins, reflecting positively on the health of demand for luxury products.
Polo Ralph Lauren (NYSE: RL) is another possible bet on the luxury sector and the growing importance of the upper classes in economic terms. Management has raised its revenue growth guidance for fiscal 2012 in high-teen to low 20% range, up from mid-to-high teens forecasted earlier. The last quarter showed an increase of 18% in earnings per share, so Ralph Laurent is experiencing strong earnings momentum.
Sales have been quite strong at Saks (NYSE: SKS) lately, the company reported a 6% increase in total sales and a 6.6% rise in comparable store sales for the month of February. For the last quarter Saks reported an even better increase in same store sales of 7.7%, and earnings per share have been better than expected at 17 cents per share versus 13 cents per share in the same quarter of the previous year.
This numbers are in stark contrast to what is happening at Sears (NASDAQ: SHLD), the decline of the middle market can be clearly seen in the retailer´s declining sales and margins. For the fourth quarter of 2011, revenue decreased to $12.5 billion compared with $13.0 billion in the fourth quarter of 2010 and same store sales were weak across the board. Of course the situation cannot be attributed exclusively to economic factors, management has committed some serious mistakes over the years, but the segment in which Sears competes seems to be increasingly tough.
The old proverb seems to be as true as ever in our times, the rich do get richer. Investors trying to be a part of the most prosperous segments of the population should consider investing in companies that benefit from this trend.
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