Stocks for a Richer One Percent
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In less than a month the activists of the Occupy Wall Street movement will celebrate their one year anniversary. On September 17, 2011, the protesters took over New York City's Zuccotti Park to fight corporate influence in elections and a growing wealth gap in the United States.
Regardless of your opinion on the Occupy movement, it is a fact that the highest one percent of earners are taking a greater share of total earnings than any time since before the Great Depression. But before somebody begins criticizing the Motley Fool for allowing a "class warfare" article, it is important to note this article is not meant to be a political discussion, it is an investment discussion. When the income of one group increases dramatically, that group's purchasing decisions will disproportionately affect the types of products sold. In a situation where the already wealthy are becoming wealthier, it may be time to look at companies that primarily target a high income demographic.
A Shopping Experience
When middle class Americans go to an upscale jewelry store it is usually for some sort of special occasion. The majority of us may only go there a once a year or less. But for the wealthy, a trip to Tiffany & Company (NYSE: TIF) does not create as much of an impact on their bottom line.
With more money, the wealthy will spend even more on luxury items helping to boost profits at Tiffany & Co. The company's stock price has already recovered from the crash and has passed its late-2007 levels. After falling from over $70 per share in March 2012, the stock bounced off its 52 week low and appears to be gaining momentum since it closed above $62 per share as of the writing. Not only does the company offer some profit potential as upper level incomes increases, but it also pays a dividend of slightly over 2 percent which it has been able to grow over the past five years.
Another way of investing in the shopping habits of high earners would be to buy stock in Coach (NYSE: COH). The upmarket accessory company sells its products in Coach Stores, online, at over 1,000 other stores and anyone who has come across one of these bags knows they are not cheap.
But the prestige of Coach products has helped the company navigate the recession and emerge more valuable than before. Like Tiffany & Co., Coach pays a dividend around 2 percent and sees significant sales from higher income people. The double treat of sales growth and a dividend make this stock almost as valuable as the products it sells.
Investing in Inequality
It is no secret that the rich have fared better in this downturn than the rest of the population. In addition to having more assets to begin with, a much larger percentage of those assets were invested in the stock market. For the middle class their largest investment is frequently their home, a less liquid asset that experienced a huge drop in value. Consequently net worth has become even more concentrated meaning the wealthy will be a driving force behind the economy, at least for the time being. While this article only addresses two selected stocks, there are many other companies that make their money mainly from purchases by the wealthy.
Until the middle class finds its feet again, the rich will have a larger share of purchasing power helping to power the companies that cater to them. Even when the middle class does recover, the wealthy will still have a large slice of the total income, an amount that could very well continue to increase over time. You can either buy a Coach bag or Coach stock. It's your decision to pick the better investment.
TulipSpeculator1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Coach and Tiffany & Co. Motley Fool newsletter services recommend Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.