If you were looking to build a portfolio based on the hits of pop stars, what stocks would interest such stars? In this article, we’ll consider some hypothetical stock picks from Justin Bieber.
Baby, Buy Johnson & Johnson (NYSE:JNJ)
One of his biggest hits, “Baby”, we will treat in the literal rather than the rhetorical sense. Johnson & Johnson (NYSE:JNJ) is perhaps the de facto standard people think of for baby products, but this market only accounts for 0.3% of its business. Its medical devices & diagnostics division accounts for 64% of its business, with 34% attributed to pharmaceuticals.
While the stock has fallen out of favor with Warren Buffet, the Bieber effect could put the stock on your watch list. Health care stocks have enjoyed a second wind since Obama’s re-election and Johnson & Johnson (NYSE:JNJ) has managed to outperform the S&P 500 by about 5% since the November swing low. It’s also running slightly ahead of peers like Pfizer Inc. (NYSE:PFE) and Novartis AG (ADR) (NYSE:NVS) in price performance, with a forward P/E comparable to each. The stock traditionally comes in close to analyst expectations, with next earnings due April 16. Like the pop star, the stock has had its publicity problems with recalls, lawsuits and bad karma. It also has to contend with competition from generics. However, a $225 billion market cap company has the clout to ride out the negatives. In addition, the stock consistently rewards its investors with a healthy 3% yield.
Watch the time
Justin’s first single was “One Time” in 2009. For this, we could look to one of my earlier picks, Movado Group (NYSE:MOV) . The company markets and distributed high-end watches under its own brand, in addition to the likes of Coach, Hugo Boss, and Ferrari amongst others. Movado is down around 10% since featuring back in January, although it has still managed to outperform the S&P 500 despite this. What hurt was its recent earnings, which guided towards a lower profit outlook, despite a beat on fourth quarter forecasts. EPS expectations for the coming year are $1.80 down from $1.83. A weak outlook for mid-priced watches is to blame, although higher-end sales were still robust. Luxury and licensed brands delivered 18% sales growth in the current year for the company.
Luxury brands have been one of the key winners within the consumer discretionary sector. However, brands like Tiffany & Co. (NYSE:TIF) and Coach, Inc. (NYSE:COH) are currently trading off highs posted in 2011, meaning there are fewer brands, like Michael Kors Holdings Ltd (NYSE:KORS), able to reward investors. This will eventually eat into Movado’s impressive licensed sales growth, but won’t stop the moneyed from buying expensive watches.
Boyfriend looks good
Justin’s “Boyfriend” was his highest-charting single. This is a tricky one to match. Again, sticking to luxury goods, we could look to beauty products and perfumes and aftershaves in particular. These are handy staples for the luxury brand houses. While the average consumer can’t afford the bag or the coat, they are often happy to get a slice of luxury by dropping $60-$100 for a scent or two. Chanel S.A. is the seller of the #1 perfume in the world, but is privately owned and Christian Dior SA (EPA:CDI) is only listed in Europe. However, Estee Lauder Companies Inc (NYSE:EL), while not a top-end brand, does have the popular Jo Malone brand in its stable. It also has the M-A-C makeup brand, which opened a flagship store on 5th Avenue and is set to open another on the Champs-Elysees.
I ran a piece on Estee Lauder in late February after a strong earnings report pushed the stock to a new 52-week high. The stock is currently sitting just off this high, but is holding its post-earnings bump. Estee Lauder’s luxury brands, which include Jo Malone, Tom Ford and La Mer, have seen sales growth of 20% from last quarter, primarily in the fragrance business, which is by far the best performing segment within the Estee Lauder group (although a smaller portion of overall revenue). Executives were bullish on their recent conference call around all three of their top-tier luxury brands. Jo Malone is a key driver in U.K retail sales along with M-A-C. Its La Mer brand won the prestigious Marie Clair Prix d’Excellence to further boost its credentials. The company recently launched Coach Love for Coach, Inc. (NYSE:COH).
All three stocks introduced here for Bieber fans are sitting near highs but still have some room to grow. Fans could do worse than add these stocks to their watch lists and eventually their portfolios. Jump on the potential opportunity to enjoy some of the riches of this idol!
The article What Stocks Would Justin Bieber Buy? originally appeared on Fool.com is written by Declan Fallon.
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