Citi: These Stocks Will Benefit From The Boom In Luxury All Around The World

china luxury car

Photo: By erinohara73 on flickr

Citi is becoming more and more bullish on the hour-glass play.The strategy holds that luxury good and discount product companies will continue to post strong returns, while firms in the middle will face increasing pressure.

For companies positioned at the top, like Richemont and Saks Fifth Avenue, affluent consumers will likely continue to spend.

“We believe this is due to relatively lower levels of unemployment for consumers with a college degree (4.0% vs. total unemployment of 9.1%) and higher consumer confidence (54.2 vs. national average of 45.4),” Deborah Weinswig, the lead Citi analyst, wrote in the report.

Apple

Ticker - NASDAQ:AAPL

Target Price - $500.00

Industry - PC Hardware

Confidence in the company's smart-phone business, where it thinks Apple can grow shipments by 40% over the next two years, has Citi placing Apple in its top pick basket. Apple's ability to drive growth through new products, like the iPad, and expansion into emerging markets, will help. Case in point, Apple currently has 245 stores in the U.S. to China's five.

Source: Citi

Brown-Forman

Ticker - NYSE:BF.B

Target Price: $85.00

Industry - Beverages

Citi believes the Brown-Forman portfolio of spirits, which includes Chambord, Finlandia, Jack Daniel's, and Southern Comfort, represents the highest premium in U.S. liquor. The company continues to launch new products aimed at top consumer segments, like Jack's Tennessee Honey, boosting top-line growth.

Source: Citi

Estée Lauder

Ticker - NYSE:EL

Target Price - $112.00

Industry - Home and Personal Care

Estée Lauder holds some of the world's top beauty brands and holds counters in some of the largest department stores in the world. The company plans to continue aggressive television advertising after strong results last year. And during the first half of 2011, Estée Lauder's Bobbi Brown, La Mer, Jo Malone, and Tom Ford Beauty brands all delivered double-digit sales growth.

Source: Citi

Flight Centre

Ticker - ASX:FLT

Target Price - AU$23.10

Industry - Business and Professional Services

Australian Flight Centre has more than 2,000 locations in 11 countries, including students, business travellers and vacation packages. Citi believes any return in global spending will result in a need for people to vacation again, which will be a boon to Flight Centre.

Source: Citi

Golden Eagle

Ticker - HKG:3308

Target Price - HK$23.50

Industry - Retailing / Broadlines

Department store Golden Eagle is the Bergdorf Goodman of China. The company's home market is one of the wealthiest regions in the country and its stores achieve some of the highest sales per square meter among retailers. Golden Eagle plans to open 22 new stores over the coming three years.

Source: Citi

LG Fashion

Ticker - SEO:093050

Target Price - ₩60,000.00

Industry - Apparel

LG Fashion is one of the primary luxury goods distributors in Korea with brands like Max Mara and Jill Stuart. Citi believes that luxury is only in its infancy in the nation, with luxe sales at department stores expected to double. Citi also thinks LG, with its net cash position, may take over distribution rights for other affluent retailers.

Source: Citi

L' Oréal Group

Ticker - EPA:OR

Target Price - €93.00

Industry - Households Personal Care Products

L' Oréal is targeting growth in emerging markets as it faces intense competition in the U.S. market. The French company's Lancome, Armani, Cacharel, Kiehls, and Yves Saint Laurent brands have strengthened, posting 8% organic growth in the first half of 2011.

Source: Citi

Mengniu Dairy

Ticker - HKG:2319

Target Price - HK$33.00

Industry - Beverages

Chinese consumers have started to trade up to higher quality milk and yogurt products following safety issues in 2008. Mengniu's high-end UHT Milk Deluxe sub brand is making inroads in the market, and with margins expected to hit 28%, it will boost the company's bottom line.

Source: Citi

Nestlé

Ticker - VTX:NESN

Target Price - CHF52.00

Industry - Food Products / Producers

Nestlé, like many of the other companies on this list, is seeing strong growth in emerging markets. The Swiss company believes it can see substantive uptake when purchasing power parity reaches $2,700. Nestlé's focus in nutrition, health and wellness also differentiate it from competitors.

Source: Citi

Richemont

Ticker - VTX:CFR

Target Price - CHF64.00

Industry - Luxury Goods

Luxury watch purchases have held up remarkably well at Richemont, which helped boost sales 35% earlier this year. Richemont positioned Cartier to better cater to price-conscious customers in the U.S. and Europe. Finally, the Swiss company's acquisition of Net-A-Porter helped buttress its e-commerce offerings and give it further entry into the apparel market.

Source: Citi

Saks Fifth Avenue

Ticker - NYSE:SKS

Target Price - $13.00

Industry - Retailing / Broadlines

Saks has readjusted itself after a painful 2008 and 2009 saw it bleed hundreds of millions of dollars. After realigning inventory needs with demand, the company has reported strong same-store sales growth this year and is relaunching with exclusive labels, helping bring clients back. Citi believes Saks relentless focus on service will position it above peers.

Source: Citi

Starbucks

Ticker - NASDAQ:SBUX

Target Price - $48.00

Industry - Restaurants

Channel checks by Citi analysts show continued strength and organic same-store sales growth at Starbucks. After shuttering unprofitable stores, Starbucks is focused on growth in Asia and will see core customers -- who skew higher-educated with higher-incomes -- contribute to its success.

Source: Citi

Starwood Hotels & Resorts

Ticker - NYSE:HOT

Target Price - $60.00

Industry - Lodging

Starwood has focused locations in highly concentrated and appealing urban markets, leaving it to benefit when business travel returns. Citi likes the company's 90,000 rooms in pipeline, which will help grow market share. At the same time, Starwood is shifting to hotel management versus ownership, which should make earnings less volatile.

Source: Citi

Trinity

Ticker - HKG:0891

Target Price - HK$9.30

Industry - Retailing / Softlines

Trinity has rapidly become the largest luxury menswear retailer in Greater China, outpacing Hugo Boss and Richemont's Dunhill. Consistent luxury growth in the region of 27% per year will help Trinity as it sells wares from Cerutti, Salvatore Ferragamo, and Kent & Curwen.

Source: Citi

United Spirits

Ticker - BOM:532432

Target Price - Rs1,168.00

Industry - Beverages

United Spirits owns a strong portfolio of liquors in India, where the market grows close to 12% per year. More than 20 million Indians pass the legal drinking age each year, spurring sales. United Spirits has also started to benefit as consumers trade up between brands, helping top-line growth.

Source: Citi

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