The stocks ‘going for gold’ in the brand Olympics

Great Britain’s crying rowers of 2004. Derek Redmond’s father helping him across the finishing line in Barcelona. Ben Johnson winning ‘the dirtiest race in history’. Everybody has one moment from the Olympics that is etched onto their memory.

But whether consciously or not, our recollection of each event is likely to be intertwined with one of the Games’ long-term sponsors, which in some cases began their partnership before we were even born – Coca-Cola, for example, has supported every Olympics since 1928.

While ‘the greatest show on earth’ has long been associated with everyday consumer goods and sporting giants, in recent years it has attracted the attention of another cohort – what we refer to as ‘premium’ or ‘leading’ brands.

Although these are not necessarily at the luxury end of the scale, they aim to foster a sense of exclusivity among their customer base, giving them pricing power and sustainably high profit margins. LVMH, Omega and Sofitel Hotels are three examples of such brands sponsoring the Paris Olympics this year.

With sport looking like the next frontier for leading consumer brands, we thought we’d look at three Olympic sports – marathon, archery and pole vault – and the stocks in this sector with the right characteristics to go for gold in each one.

The marathon runner– LVMH

Many investors with a long-term horizon struggle to see how a brand can remain relevant for decades into the future and may even be tempted to take profits in the parent company after a particularly strong run.

LVMH offers the perfect riposte to such thinking. Of the three brands that make up its name, the youngest, Louis Vuitton, was founded in 1854¹. The others, Moët & Chandon and Hennessy, pre-date the French Revolution, while the oldest name in its stable of brands – winemaker Domaine des Lambrays – is referred to in documents going back to 1365².

But while LVMH is not a company that is taking its history for granted, its focus remains very much on the future. Its approach to crises – when it ramps up investment while many of its competitors are reducing theirs – allows it to grab market share and power ahead when conditions start to improve.

As the performance of luxury goods becomes polarised between ‘A’ and ‘B’ brands, LVMH is pulling ahead of the crowd, which should allow it to take full advantage of the many long-term tailwinds driving the sector. It has already delivered a 21% compound annual growth rate in its share price over the past decade³, with its best years still ahead of it. This is a company fully capable of going the distance.

The Archery champion – EssilorLuxottica

In the recurve archery event, competitors aim to hit a gold ring measuring 12.2cm in diameter from 70 metres away. This isn’t a sport where athletes can afford to neglect their eyesight, which is where EssilorLuxottica comes in.

EssilorLuxottica is the global leader in eyewear, owning well-known brands such as Ray-Ban and Oakley, and is licensed to make glasses for luxury names including Prada, Versace and Ralph Lauren.

However, just as important is its lens-crafting business and the tailwinds working in its favour – as of last year, there were about 2.6 billion people in the world who had myopia and required vision correction, equivalent to 34% of the global population⁴. That number is predicted to reach 4.7 billion by 2050⁵. Yet fewer than half of those have access to ophthalmological care⁶.

As wealth creation rises across the developing world, so too will spending on eyecare. This is why EssilorLuxottica’s earnings are expected to grow at 11% per annum over the long term, with organic sales growth of 6%⁷. We are confident it can hit its target.

The pole vaulter – Estée Lauder

Pole-vaulting success involves springing up from a low level, and we believe Estée Lauder could be about to follow a similar trajectory.

Following a poor run of quarterly results and downgrades over the past year, the stock has fallen by almost a third since the end of March and close to 70% since its 2021 peak⁸.

However, many of its problems are short term in nature and our meetings with the company, industry experts and competitors have highlighted the strength of its product portfolio and the beauty industry’s long-term growth dynamics.

Further, management’s cost-cutting programme means an expected sales recovery should be accompanied by margin expansion. If revenue growth recovers to normal levels, our analysis suggests shares will trade at half their 10-year average, implying a significant bounce from their current level⁹. This is not a stock for the high jump.

The Artemis Funds (Lux) – Leading Consumer Brands Fund’s objective is to increase the value of shareholders’ investments primarily through capital growth over a five year period. The fund is actively managed.