Trading idea: LVMH (MC-FR)
The stock has made a particularly bullish course, but is now in a short-term correction. This does not yet call into question the buy signal given last June.
LVMH (Louis Vuitton Moet Hennessy) is a €312.9 Bn market cap and a a France-based luxury group active in six sectors: Wines and Spirits, Fashion and Leather Goods, Perfumes and Cosmetics, Watches and Jewelry, Selective Retailing and Other Activities.
Wines and Spirits owns brands, such as Moet & Chandon, Krug, Veuve Clicquot, Hennessy and Chteau Yquem, among others. Fashion and Leather Goods owns brands, such as Luis Vuitton, Christian Dior and Givenchy, among others. Perfumes and Cosmetics owns brands, such as Parfums Christian Dior, Parfums Givenchy Guerlain, Benefit Cosmetics, Fresh and Make Up For Ever, among others. Watches and Jewelry owns brands, including TAG Heuer, Hublo, Zenith, Bulgari, Chaumet and Fred, among others. Selective Retailing owns the brands DFS, Miami Cruiseline, Sephora and Le Bon Marche Rive Gauche, among others. Other Activities includes lifestyle, culture and the arts brands, such as Les Echos, Royal Van Lent, and Cheval Blanc. The Company is active worldwide.
The shares of the luxury goods conglomerate dropped by13% last week. A correction was certainly overdue after months of an almost uninterrupted rise in the stock's price. But the selloff, though, was also a more fundamental concern around luxury brands' prospects in China.
With China a crucial market for luxury goods (30% of LVMH revenues and the main growth engine), every move by the ruling Chinese Gouvernment is scrutinized. In fact, the trigger for the correction was a speech by President Xi in which he pledged to "adjust excessive incomes". Amid a fury of new regulations, a new one (for exemple a tax on luxury goods) could drive another drop on the Luxury sector. But the main risk in our view, would consists in a behavior change by China's wealthy people that would see them avoiding ostentatious spending.
Therefore short term caution is required, even if the drop could later offer on an opportunity to jump in the stock at one time or another as LVMH is clearly a Buy & Hold » stock, and a megatrend opportunity.
Short term catalyst : Chinese regulation on Luxury goods.
This signal looks consistent with the European Luxury sector in Major Bullish Trend.