For every stock I like and want to own, there are many more that I wouldn’t buy for various reasons. Here are two of them that also happen to be household names.
Burberry
First up is Burberry Group (LSE: BRBY), the global luxury fashion house and maker of the iconic trench coat. The share price has plunged by around 67% over the past five years!
Now, part of me thinks there must be an overreaction here. Yes, the FTSE 100 firm’s sales are falling, but that’s true for nearly every other brand across the luxury sector.
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LVMH, the world’s biggest luxury group, just reported slower sales than expected for the first half. The stock is down 10.5% in 2024.
Yet, I note that other luxury stocks are doing much better: Hermès International is up 8% year to date, Richemont is up 15%, and Ferrari (one of my top holdings) has soared 20%.
But as Bernstein luxury analyst Luca Solca recently pointed out, Ferrari and Hermès “occupy the pinnacle of the pricing pyramid” in their categories. They both sell less than the market demands. Much less.
My fear with Burberry is that its attempts to raise prices and move upmarket is doomed to failure, sector downturn or not. Of course, I hope I’m wrong, and perhaps that’s the problem here. I feel that I’d be investing just because it’s a top British brand that has fallen on hard times. Sentiment then, essentially.
But the cold hard facts are that the dividend has just been scrapped and the fourth CEO in a decade is in the hot seat. Perhaps he can turn things around. He has a lot of experience in the sector.
In the near term though, I also worry that there could be brand equity damage from unsold items hitting the outlet market. There’s too much uncertainty here for me.
Nvidia
Next, we have Nvidia (NASDAQ: NVDA), where almost the opposite problem exists. Sales and profits are absolutely rocketing as the firm’s chips power the ongoing artificial intelligence (AI) revolution.
Consequently, the shares have gone in totally the opposite direction to Burberry’s. They’re up 2,520% in five years!
Nvidia became a household name earlier this year when it briefly eclipsed Apple and Microsoft to become the largest company in the world by market cap.
Yet, I’d argue that Apple and Microsoft have far more diversified revenue streams. If the AI revolution suddenly disappeared in a puff of smoke, I’d be much less worried about their share prices than Nvidia’s.
Now, Nvidia is an incredible company and I owned the shares for a long time. Its technology lies at the intersection of multiple powerful technological trends, from AI and self-driving cars to the metaverse.
Moreover, Jensen Huang, the CEO and founder, is a true visionary. He is exactly the sort of leader I want running the companies that I invest in.
However, competition is mounting, especially from its largest customers who are making their own AI chips to reduce reliance on Nvidia. And the stock is priced for robust future growth, which isn’t guaranteed to happen year after year.
As things stand, I think other AI stocks are more worthy of consideration than Nvidia.
