Ferrari and Hermès Offer Recession Resilience and Pricing Power, But Wait for Pullbacks Before Buying
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Ferrari (RACE) has extremely high demand and a 2-year waiting list for its luxury vehicles, giving it pricing power and the ability to control its growth rate. It has strong financials including 12-20% revenue growth, 26.5% profit margins, and 21-24% return on capital.
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Hermès has similar dynamics of high demand and scarcity for its Birkin bags and other luxury goods. It has nearly 20% revenue growth over 5-10 years, 50% return on capital, and pricing power due to its brand heritage spanning 6 family-owned generations.
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Both companies have wide economic moats thanks to their luxury brand value and heritage, making them virtually undisruptable. Their high-end customer base also makes them recession-resistant.
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The author believes both stocks would be strong buys on any broader market pullback. Hermès at 36x earnings or Ferrari at 35x earnings would be seen as good entry points.
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The author concludes these are extremely high quality businesses that investors will likely do well buying at almost any price, but waiting for more favorable valuations can allow for better upside.