Recently my wife and I were discussing LVMH (OTCBB:LVMUY), the Paris-based luxury goods empire. She knew the first two initials stood for Louis Vuitton but couldn't come up with the last two. The M is for Moët & Chandon, a famous champagne maker, and the H is for Hennessey, an equally well-known purveyor of cognac. These are just three of the many brands cobbled together by Bernard Arnault over the years. If you're interested in owning a large cap that's survived, and in fact thrived, during the global economic upheaval, LVMH is a great bet. The only problem is trying to buy it. Here are my three suggestions for doing so.
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Over the Counter
The first way is to buy the actual stock on the pink sheets. One unsponsored ADR is the equivalent of one-fifth of a share. Its closing price as of October 20 was $31.03. LVMH paid an annual dividend in 2010 of 2.10 EUR, which is the equivalent of 58 cents per ADR once you convert the currency for a current yield of 1.8%. This rises to about 2% with a 10% year-over-year increase of the dividend. LVMH's over-the-counter volume is actually quite reasonable, so liquidity isn't as big a concern. However, it's nowhere near the 1.5 million shares traded daily on the Paris Exchange, LVMH's home base. If you employ an investment manager, they can probably buy it for you. Otherwise it's OTC or bust. (Being early to a party may not be hip, but being early on a rising stock certainly is. For more, see The Over-The-Counter Market: An Introduction To Pink Sheets.)
Between 2007 and September 2010, investors looking to buy luxury names like LVMH, Hermes and PPR could do so with the Claymore/Robb Report Global Luxury Index ETF. Unfortunately, when Guggenheim Partners acquired Claymore in mid-2009, weaker funds were shown the door. Dave Nadig, an analyst at Index Universe, wrote a very informative article in September 2010 about the fund's sad and unfortunate demise. Among the critical points Nadig makes for such a fund's existence include steady, if not spectacular increases in net assets, reasonably good performance and a 32-stock portfolio with geographic diversification that's hard to duplicate in a regular brokerage account. It was the perfect use of the ETF structure.
Alas, it is no more. The next-best option is the SPDR S&P International Consumer Discretionary Sector ETF (NYSE:IPD), which invests in consumer discretionary stocks outside of the U.S. With 122 stocks in the portfolio, LVMH is the fifth-largest holding out of 122 companies. Interestingly, the
This fund is specific to Europe, and it's the European Equity Fund (NYSE:EEA), one of several closed-end funds from DWS Investments, itself a division of Deutsche Bank (NYSE:DB). The fund has been around since 1986, growing to $99 million in assets. If you had invested $10,000 in the fund on September 30, 2001, 10 years later it would be worth $11,789. While the 17.9% total return over 120 months seems mediocre, it's 920 basis points higher than the S&P 500. The portfolio itself has 40 holdings, a reasonable number, with an average holding period of a year and a half. It's more than I like to see, but it's not outrageous.
Through the first six months of 2011, LVMH revenues were up 13% while net profits gained 28%. All five of its segments made more money in the first half of 2011 than the year before, with fashion and leather goods responsible for 62% of its profits. In the third quarter, LVMH completed its $5.2 billion takeover of Italian watchmaker Bulgari, adding tremendously to the watch and jewelry segment's revenues. Up 160% in the quarter, the deal was its most expensive yet, paying nearly 26 times EBITDA. When it acquired 17% of Hermes in 2010, it paid 15.5 times EBITDA. If the Q3 is any indication, Bernard Arnault knows exactly what he's doing. Any of these three investments I've mentioned will get you on board arguably the world's best luxury goods business. That's a good thing. (For more on EBITDA, see EBITDA: Challenging The Calculation.)
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