We are experiencing some temporary issues. The market data on this page is currently delayed. Please bear with us as we address this and restore your personalized lists.
Is The Estee Lauder Companies (EL) the Top Luxury Stock According to Hedge Funds?
We recently published a list of Top 12 Luxury Stocks According to Hedge Funds. In this article, we are going to take a look at where The Estee Lauder Companies Inc. (NYSE:EL) stands against other luxury stocks according to hedge funds.
The Luxury Goods Market and Consumer Behavior
According to a report by Mordor Intelligence, the luxury goods market has a size of $103.10 billion as of 2024. It is expected to grow at a compound annual growth rate (CAGR) of 7.07% and reach $145.08 billion by 2029. Similarly, a study by Global Market Insights published on Yahoo! Finance shows that the luxury packaging market was valued at $17.2 billion in 2023. It is also anticipated to grow and reach $25.8 billion by the end of 2032.
North America’s demand for luxury products is significantly high, primarily due to the region’s high disposable incomes. This is especially significant in the ongoing holiday shopping season in the US. On December 17, Simeon Siegel, BMO Capital Markets senior analyst for retail and e-commerce, appeared on CNBC to discuss the state of the consumer in the current holiday shopping season. He said that the US consumer is overly resilient. In the current scenario, the market is seeing winners grow and laggers fall behind, which is how it should be. This trend goes opposite to market dynamics in COVID-19 when every company grew. Siegel was further of the view that the consumers are still spending. For better and for worse, consumers are scared of not having something under the Christmas tree this year.
On December 10, CNBC’s Steve Liesman appeared on ‘Squawk Box’ to discuss the CNBC NRF Retail Monitor. Numbers from the Monitor corroborated Siegel’s claim and showed healthy consumer spending in November despite a shorter holiday shopping season in 2024. Non-store retailers showed a 21.5% year-over-year growth, reflecting these positive trends. Since this holiday shopping season came with lower gas prices and a deflation in the prices of goods overall, consumers had more discretionary dollars in their pockets and paid somewhat less compared to a year ago. Since luxury items fall in the category of discretionary items, these trends show positive stimulus for the industry.
We discussed consumer behavior in the ongoing holiday shopping season in a recently published article on the 7 best department store stocks to buy now. Here is an excerpt from the article:
“The holiday shopping season is in full swing in the United States. On December 2, Jessica Moulton, senior partner at McKinsey & Company, appeared on CNBC to discuss Black Friday spending and its effects on consumer sentiment. She said that while 2024 was a challenging year for retailers, the numbers rolling in from the holiday season seem promising. High hopes were especially placed on Black Friday sales, and while the numbers aren’t all in, they look pretty good. This trend holds particularly true online, where sales seem to be up by 15% or so compared to last year in many markets. According to CNBC, the total Black Friday e-commerce spending was around $10.8 billion. However, Moulton said that footfall in stores wasn’t so good, and continued to be flat year-over-year.
Consumers Looking Towards Value at a Discount
On December 2, Mastercard Economics Institute chief economist Michelle Meyer appeared on CNBC to discuss industry trends and said that consumers have been geared to find value and best deals. She said that the Black Friday numbers show that consumers have been monitoring the market and gearing up to spend on the Black Friday weekend.
With inflation cooling and promotions returning, consumers are focused on finding the best deals in the market that offer value at a discount. This was one of the major motivating factors that drove considerably strong spending in e-commerce during the Black Friday weekend. Apparel, jewelry, and electronics remain the top gift sectors for the holidays, but consumers are prioritizing promotions with the greatest value instead of going ahead with brand loyalty. Meyer was of the view that consumers have the ability and the willingness to spend; they are just being savvy with their expenses by spending when promotions and deals come in.
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 30 luxury stocks. We then selected the top 12 most popular stocks among elite hedge funds as of Q3 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Estee Lauder (NYSE:EL) manufactures, markets, and sells skincare, makeup, hair care products, and fragrances. It sells its products in more than 150 countries and territories under various brand names, including Estee Lauder, Clinique, Aramis, M.A.C., Bobbi Brown Cosmetics, TOM FORD, La Mer, Too Faced, and several others. It also operates the DECIEM family of brands, including The Ordinary and NIOD. In addition, Estee Lauder is a licensee of cosmetics, fragrances, and related items for Dr. Andrew Weil, BALMAIN, and AERIN.
The company’s organic sales decreased by 5% in fiscal Q1 2025, driven by declines in mainland China and global travel retail primarily owned to Hong Kong SAR and Asia. Apart from these three areas, sales in the rest of the company’s global business grew by 1% both on an organic and reported basis. Sales growth also accelerated sequentially from 2% to 3%. A number of Estee Lauder’s (NYSE:EL) markets delivered organic sales growth in fiscal Q1 2025, including Japan and EMEA.
The company’s primary focus is rebalancing its regional growth in the face of market volatility in China. Its strategic reset for fiscal 2025 is based on five core priorities. These include capitalizing on multiple growth drivers of high-end fragrance, advancing in skin care, leveraging winning channels, launching accretive innovation, and driving modernized precision marketing by employing AI and data.
ClearBridge Large Cap Growth Strategy made the following comment about The Estée Lauder Companies Inc. (NYSE:EL) in its second quarter 2023 investor letter:
“We have refreshed our whiteboard and will look to take advantage of such downside earnings revisions among early cycle recovery plays in industrials and consumer discretionary. We are targeting quality themes in the consumer space where estimates have been partly de-risked, similar to the scenario that prompted the purchase of The Estée Lauder Companies Inc. (NYSE:EL) in the fourth quarter. Such names should be well-positioned to deliver improved earnings on the other side of an eventual recession.”
Overall, EL ranks 3rd on our list of luxury stocks according to hedge funds. While we acknowledge the potential of luxury stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than EL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
