During the Covid crisis, there was talk of a K-shaped recovery, with the wealthy seeing solid returns while those less fortunate would continue to suffer. That appears to be playing out today. While the wealthy are being hit harder by the stock market decline, they’re less vulnerable to changes in housing and energy prices.
That may be why luxury goods sales have been holding up so far this year, even as it appears most consumers are spending more to get less thanks to inflation.
This K-shape trend has been seen strongly with companies like Williams-Sonoma (WSM). As mainstream retailers have been warning on declining margins, this company has seen a strong rise in earnings as shoppers have continued to buy at the high-end home goods store.
That’s helped shares reverse some of their losses from the past few months, with the company now down about 25 percent in the past year. The drop in shares, bolstered by strong earnings, means the company now trades at under 8 times forward earnings.
Action to take: With double-digit earnings growth, investors may want to consider this retail play. Plus, at today’s prices, shares yield about 3 percent to start, with room for further growth over time.
For traders, the August $150 calls, last going for about $5.00, offer a mid-to-high double-digit return in the coming months on a further rally in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.