Why Luxury Stocks are Worth Investing In

Here's how to cash in on luxury stocks whose businesses cater to big spenders.

fancy white heels and purse
(Image credit: Getty Images)

As worries about inflation and economic troubles take their toll, average Joes and Janes pinch pennies. But the rich continue to splurge. You may not be able to afford a $229,000 Mercedes-Maybach sedan or a $68,000 rose gold Cartier watch, but for a tiny fraction of those sums you can buy a stake in a company that sells such luxuries and set yourself up for a chance at a sumptuous profit. 

During times of economic difficulty, companies that serve the middle class typically get squeezed. And discounters, not surprisingly, get a boost. Perhaps more surprising is that companies representing the ultimate in consumerism also typically thrive. 

"There are two groups that could do well within an economic downturn: the really high luxury end and discounters," says Joe Mazzola, a former portfolio manager who now heads trader education for financial giant Charles Schwab

The longer-term outlook for the luxury market is bullish, according to a January report from the Bain & Co. consulting firm. The reopening of China's economy, rising wealth in India and growing interest in luxury goods among affluent millennials and Gen Zers around the world raise prospects for a luxury boom lasting several years, according to Bain, which expects total annual luxury sales to rise 50% from 2022 levels, to $625 billion, by 2030. 

Investors need a discerning eye, though. Luxury stocks aren't completely immune to economic cycles or market swings, and no company is a guaranteed winner, especially among those selling in the capricious fashion market. Moreover, high expectations have driven the stock prices of some of the biggest luxury houses well above the general market's valuation. The S&P Global Luxury Index, which tracks 80 large luxury firms around the world, returned 13% over the past year, more than four times the S&P 500's gain.

There are other caveats. Many of the best-known companies are headquartered overseas, and their shares trade in the U.S. as American depositary receipts. ADRs are dollar-denominated versions of international stocks that have been issued by U.S. banks.

Although they may represent huge companies, ADRs often trade at lower volumes than stocks of U.S.-based companies. That means the spread between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept will likely be wider among ADRs than among stocks of large U.S.-based companies, says Mazzola. Some U.S. brokerages also charge commissions for trading some ADRs.

If you're in the market for some bling for your portfolio, consider the five luxury stocks below serving up a variety of high-end goods with strong brands and staying power. Prices and other data are as of May 31.

Kim Clark
Senior Associate Editor, Kiplinger's Personal Finance

Kim Clark is a veteran financial journalist who has worked at Fortune, U.S News & World Report and Money magazines. She was part of a team that won a Gerald Loeb award for coverage of elder finances, and she won the Education Writers Association's top magazine investigative prize for exposing insurance agents who used false claims about college financial aid to sell policies. As a Kiplinger Fellow at Ohio State University, she studied delivery of digital news and information. Most recently, she worked as a deputy director of the Education Writers Association, leading the training of higher education journalists around the country. She is also a prize-winning gardener, and in her spare time, picks up litter.