Berk Sure Has A Way

Last week I posted a negative outlook on luxury good stocks on Seeking Alpha.  Of course, timing is everything and these stocks promptly rose further!  But if you didn’t see the article then, you have an opportunity now to sell at even higher prices!

During the 2008-09 financial crisis, luxury goods companies’ sales, profits and stock prices tanked. During the rebound they have grown dramatically, and many stocks are now above their pre-crisis highs. This situation will not last.

Here are seven vulnerable stocks: Estee Lauder (EL), Polo Ralph Lauren (RL), Tempur-Pedic (TPX), Coach (COH), Tiffany & Co (TIF), Nordstrom (JWN) and Lululemon (LULU).

The thesis hinges upon a continuing economic slowdown in the U.S. and Europe. A variety of factors will rein in spending among the wealthy while increasing costs at luxury goods companies:

1) Stock Market Volatility and Decline

2) The recent renewal in home price declines

3) Continued Economic and Political Uncertainty

4) Inevitable Increased Taxes

5) Higher Input Prices

With sales likely to slip, costs likely to rise and high PE and PS ratios, these luxury stocks are likely to fall over 30% from current prices.

You can read the full article on Seeking Alpha:  Luxury Goods Vulnerable.