A lot of people are upset that the current political-economic system is geared toward benefiting the wealthy, and they may be right in their complaints. But rather than whine about it, you’re better off trying to figure out how you can benefit from this situation. The rich are getting richer, and that probably isn’t going to change anytime soon, but you can invest in the companies that will benefit as the rich get richer.
There are several companies out there that cater to the wealthy. One advantage to investing in these companies is that they generally don’t have to compete on price. They have developed market niches for themselves by creating quality, desirable products. This is a huge advantage over investing in companies that market to the poor, who often shop based on price. These companies often have razor-thin profit margins, and therefore a small misstep or miscalculation can lead to losses. The three companies I list below are all growing their businesses and their margins, making them compelling investment ideas.
1. American Express (NYSE:AXP)
American Express is a credit card company that markets to the affluent, and as a result, an American Express card is often a symbol of financial success and wealth. The stock has just come off of an all-time high, as profits have been steadily rising as the rich spend more on their American Express cards. The great thing about American Express is that not only are the rich spending more, but they, like the rest of the world, are spending more using credit cards, which are far more convenient than cash. Thus, American Express is positioned to improve its sales at a greater rate than the rate at which the rich are spending, and this is a good position to be in.
Investors who are interested in the stock should keep in mind that it is never a good idea to invest in a company whose stock is trading at or near an all-time high. Investors should therefore wait for a pullback, although be forewarned that such a pullback will only come on the back of some negative news, making it psychologically more difficult to buy.
2. Ruth’s Hospitality Group (NASDAQ:RUTH)
Ruth’s Hospitality Group is a restaurant owner that operates several restaurants that cater to upscale clientele. The most popular of these is its Ruth’s Chris steakhouse chain. While prices are high, the quality of the food continues to draw in affluent customers, and as a result, the company has expanded the chain to more than 100 locations. Unlike many restaurant companies, Ruth’s Hospitality Group has relatively high profit margins, and given its pricing power, it has been able to overcome the rise in agricultural commodity prices. This is a big deal, considering that beef has been a leader in this uptrend. This, combined with a steady increase in sales, makes the 18 price-to-earnings multiple appear compelling.
The stock is about 20 percent off of its recent high as investors have been taking some profits, although while many stocks in the market appear to be rolling over, Ruth’s Hospitality Group seems to be forming a base, and the stock is worth buying under $12 per share.
3. Michael Kors (NYSE:KORS)
Michael Kors is a relatively new high end brand, although it is quickly gaining popularity in mainstream fashion circles. It produces accessories, footwear, and apparel that are fashionable and very pricey. The rich don’t seem to mind, though, and they are buying up more of the company’s products. As a result, shares have been soaring. However, as of late the stock has stalled out, which for growth-stock investors usually means that the company’s growth is decelerating. This is a risk, but at 28 times earnings, the company’s 50 percent-plus growth rate appears to be extremely inexpensive, and so long as the rich have money to spend and a desire to be fashionable, Michael Kors should succeed.
Of the three stocks mentioned here, this is probably the least expensive given its awesome growth rate. It has pulled back from its high, leading some analysts to question the bullish thesis, although the current price of $90 per share is a good entry point. Given that Michael Kors is a fashion company and fashion-trend followers are fickle, you should be careful and use a stop order.
Disclosure: Ben Kramer-Miller has no position in any of the stocks mentioned in this article.