Baloncici Long-term portfolios tend to gain a lot of value when you add uncorrelated assets. Now, we know that equities tend to move alike, and it is very rare to find stocks that are great in risk-off environments. Nevertheless, luxury names tend to do well in the aftermath of recessions, because after the panic abates, good luxury names bear lower revenue losses than other mainstream companies.
The logic is simple, the majority of the customers of luxury products have more income than they need and won't cut back on spending as a normal person would. I have explored this idea in a recent writing on Louis Vuitton ( OTCPK:LVMUY ). Hence, having luxury companies in a portfolio could be a good diversifier, potentially offering good returns coming out of recessions and providing flexibility to portfolio management.
A ramification of this strategy is prestige personal care brands. Estée Lauder ( NYSE: EL ) is a company operating in this segment. In the following paragraphs, we shall see if it fits the bill for a luxury/prestige personal care brand investment.
Stock performance The first thing to do is to look at the stock performance following a stress test period like the Great Financial Crisis and compare it to a benchmark. The result is revealing. Estée Lauder outperformed the benchmark in the run-up to the Lehman bankruptcy, but the panic ensued and it got flushed with the market.
However, in the aftermath of the Lehman bankruptcy, it went on to outperform the S&P signifi.
