Buy these 'cheap' stocks, Barclays says, as luxury's 'self-help stories' pay off

Barclays says luxury stocks now offer the best value in a decade and expects sector revenue growth to recover to about 3% this year, then stabilize at 4% through 2029. The bank upgraded LVMH to overweight and Kering to equal weight, while maintaining overweight on Richemont; it cut Hermès to equal weight and slashed its price target to 1,700 euros from 2,310 euros. The note highlights geopolitical pressure from the Middle East conflict, but also sees upside from brand turnarounds and stronger jewelry exposure.

Analysis

The market is treating luxury like a cyclical dead-end, but the more interesting setup is a dispersion trade: brands with controllable execution risk and real pricing power can re-rate even if aggregate sector growth stays mediocre. That favors names where margin recovery can be self-generated through product refresh, distribution discipline, and mix, rather than waiting for a broad consumer rebound. In that regime, the winners are less about absolute growth and more about who can restore investor confidence fastest.

Jewelry exposure is the cleanest second-order beneficiary because it is the least dependent on aspirational fashion cycles and the most resilient to a selective consumer. If Middle East demand remains impaired, some spending likely reallocates toward high-ticket, lower-discretion categories in the U.S. and Europe rather than disappearing entirely, which supports Richemont relative to handbags/apparel-heavy peers. The flip side is that brands with crowded fashion exposure face a longer lag before any China stabilization translates into earnings leverage.

The contrarian point is that the sector’s “cheapness” may be a value trap for brands without a visible catalyst; low multiples can persist if growth keeps downgrading. The sharp reset in Hermes suggests the market is beginning to price in that even best-in-class compounding is not immune to deceleration, so the premium multiple may keep compressing if organic growth normalizes from extraordinary levels. That creates a valuation ceiling for the whole category until investors see two consecutive quarters of improving sell-through and not just easier comps.

Near term, the key catalyst is not geopolitics itself but whether management commentary on replenishment and regional demand stops deteriorating over the next 1-2 reporting cycles. If the Middle East drag stabilizes and U.S. consumption holds, the sector can trade on idiosyncratic execution rather than macro fear. If not, any rally in the group will likely fade as investors regain confidence that 2026 inflection is being pushed out.

Key Decisions for Investors

• Long KER vs short HESAY/HESAF in a 3-6 month pair trade: Kering has the highest operating leverage to a credible self-help narrative, while Hermes still carries the most de-rating risk if premium growth normalizes further.
• Overweight CFR over a basket of fashion-led luxury names for a 6-12 month horizon: jewelry pricing power and lower cyclicality offer better downside protection if global luxury demand remains patchy.
• Buy LVMH on weakness with a 6-9 month horizon: use pullbacks to add because multiple expansion can come from even modest stabilization in Dior/Tiffany execution, but size smaller than the Richemont trade because it still has broader category exposure.
• Avoid chasing broad luxury beta until next earnings season: wait for evidence of sequential improvement in organic growth; if not visible, the sector’s valuation reset can remain a dead-money trade for another 1-2 quarters.
• For more aggressive exposure, use call spreads on KER over the next 4-6 months: defined risk captures upside if turnaround credibility improves, while limiting damage if the market decides 2026 recovery is too far away.