 Good day fellow investors. Before starting with the analysis of Louis Vuitton and Richemont, the Cartier stock, let me tell you that by looking at these companies first, what the first thing I have seen is that there is a lot of money in this world. The inequality gap is really getting bigger, the rich are getting richer and it's not unusual to see stocks like Louis Vuitton, Cartier and all those luxury watches and everything increase their sales three times or two times for Richemont. So very interesting analysis. Will there be more wealth in the future? Probably yes, especially with this money printing. So we can expect that the sales of these companies also increase. Let's look at the fundamentals, at the business, the possible investing strategy, what to expect from these investments and then conclude with what are my views and where do I put these stocks onto my, let's say, comparative stock scale. Let's start. So as said, company overviews at the beginning, company fundamentals, investment bank analysts reports and their price targets for Richemont. I have two of them. My investing views, global wealth growth and the strong tailwind there and an investing strategy. So Louis Vuitton is a bigger company than Richemont, more diversified and therefore some suspect more stable in case of a recession. But more about the risks part later. You will be surprised about the business impact of a recession on these businesses. Louis Vuitton's net income in 2009 compared to 2008 dropped only 20%. So that impacts the stock as analysts always project the current into the future, no changes in their trends, they cannot see ups and downs and therefore it hugely affects the stock. But the businesses aren't really affected by a recession that much. 20% drop in earnings is not like they are going bankrupt. What does Louis Vuitton do? Well, they have wine, spirits, small part of revenue, 12%, fashion and leather goods and selective retailing is what makes the bulk of the revenues. The selective retailing is Sephora cosmetics, the DFS luxury travel retail, food hall in Paris, etc. The sales have been growing over the past year, about 9%, 10%. So very good. On Richemont, they are a little bit different, they have most of their sales, again 67% from watches and jewelry. So again, very luxurious items with Cartier as a top brand. And they recently completed an acquisition, Ux, Netaporteur, an online luxury retailer in Europe. They paid 2.7 billion to get full ownership. So the valuation is about 5.3 billion, as they were already the largest shareholder. So they are transitioning into an online luxury game. The Richemont is mostly famous for jewelry brand Cartier and of course the watches. From a few brands here, you might recognize some of them. Let's look at the company fundamentals. On the surface, there isn't a big difference between the two. Louis Vuitton has a peer ratio of 24 and the dividend yield of 1.83%. Richemont has a peer ratio of 12.78. But that's mostly due to one-off non-cash tax gain. So the forward price earnings ratio is close to Louis Vuitton's and the dividend is a bit higher. But the difference comes from the 35% Swiss withholding tax. So if you buy Richemont, you have to see how does that Swiss withholding tax apply to your dividends. Because 45% is a big chunk of your dividends. And evaluations are similar after the dividend tax. The price to sales ratios are also similar. 2.84 for Richemont, 3.43 for Louis Vuitton. Sales growth is 10%. 24% for Richemont. But just 8% excluding the acquired online retailer. What is different in the stock price performance? Louis Vuitton's stock went only up over the past 10 years. Richemont's stock price is back to 2012 levels. So volatile, yes, you might want to take a short-term jump if things improve. They take advantage of that. Apart from the stock price, the balance sheets look different too. 2. If we look at the cash assets of Richemont, we have about 10.6 billion euros in highly liquid assets. Which comes out to 18 euros per share on 75 Swiss francs share. So a pretty significant amount. And the debt is not that big. With Louis Vuitton, it has also 4.6 billion in cash. But more debt going up to 23 billion. Plus most of the assets are goodwill and brand or intangible assets. And you never know how to really value them. It depends on the future cash flows. So let's say the balance sheet doesn't look as good as Richemont's. Plus there is less available liquidity per share. Given all the above excluding consumer preferences, are we going to buy more jewelry, more watches or more leather bags? I would say that from just a value, let's say margin of safety perspective, Richemont looks much better than Louis Vuitton. Let's dig deeper. I have received two analyst reports on Louis Vuitton. And it's really, it mesmerizes me how the analyst environment and how the institutional investment environment works. The first thing is that the analysts target for Richemont as the stock price dropped from 90, 95, 100 to 66 were lowered from 95 to 75. Now the stock price is exactly where those targets are. A few years ago, when the stock price was again low, they were just lowering their price targets. As the stock price goes up, they are increasing their price targets. So they're really working with with a rear view mirror there. And then they focus really on the short term. This is what they start with during the latter part of the quarter, quoting the management, sales in Europe were affected by social unrest in France. The retail channel posted a 5% increase in sales, but blah, blah, blah, France had a strong impact on sales. So the analyst conclude that that might transfer into the future immediately lower the price targets, because their target expires in 2020. So they have a stock price target for the next year. They are looking at what's going on, everything short term. And then exploiting that into the future, they estimate all thanks to investment, both Louis Vuitton and Richemont, 5%, 6% growth over the next few years, and then a terminal growth rate of 3%. And they put that into a model and then they get what is the target price. If the target price, if the stock price goes down, they will lower the target price. So really be careful with analysts targets. They are really focused on the short term because that's their job. And that's their job because most investors are focused on the short term. The biggest concern most investors have is where will Richemont's stock go in the next six months? Will it go back to 100 or will it go down? They are not interested in investing in the business. And this is where you can take advantage of. Funnily again, the acquisition risk given the cash pile and different time horizon from the returns of those done the market is what the analyst of this investment banks points out as a risk. So the market has a different time horizon than a company that would make an acquisition and invest their money into future growth into future market positioning. It's not focused on return on invested capital. It's focused on what will the market think, what will be the dividend in 2020 and where will the stock price go? So it's completely mind blowing the short term ways these things are working. Now the first thing I'm concerned with this from an investment strategy perspective is what is the mode of these brands? Yes, they have a tailwind, but will they still have a tailwind watches, expensive luxury bags, always the same style with Louis Vuitton? Will they still dominate the market in 5 to 10 years? Fashion customer preferences can change, but the tailwind is really strong and we'll talk more about the high networked individuals and their number growing as the rich get richer. However, that's one concern. The second concern is Europe and we have recently seen George Soros writing an article in The Guardian how the EU looks like the Soviet Union in 1991 on the verge of collapse and how really we have to keep that in mind as anything can happen in Europe. Now things look very good, but if this happens, then the luxury brands might be even a hedge due to their Asian exposure, due to their strong balance sheets, low debt, high margins. They might give you a hedge, but they might also give you a very cheap buying opportunity. Analysts alarmed investors when it was at 100 because of the turmoil in Europe lowered immediately the price target as the stock dropped from 100 to 66 just because of the turmoil in France. What will happen to the stock? Not the business, the business did good. If there is real turmoil in Europe, Brexit, less traveling, slowdown, etc., that would be a very hard hit to the stock and then you have to compare how will the business do and what will be the long-term outlook. The long-term outlook, you have global wealth growth and that is a strong tailwind. The amount of wealth forecasted to grow in China over the next 10 years is 180%, so it will practically triple the same situation in India and Chinese wealth will be at the same level with the United States. So that would give a huge tailwind to these stocks and that's something that's the positive, that's the long-term investment strategy. My strategy, what I think as a value investor, I would prefer Richmont in this case, but then you have to have the courage to buy it when it dips on a terrible outlook. As it happened in 2003, 2009, 2012, 2015 and 2019, even now it's still in a dip and it might be a good short-term play if it bounces back to the 100, but if there is more turmoil giving the European elections coming, etc., 2019, 2020, you might see it go down to 50 very, very easily. So slow down in Asia would be detrimental, but there is a long-term trend, so this is really a stock, if you like this kind of portfolio exposure that okay, I have to watch it, take advantage of the volatility because the volatility is high, but the volatility in the business is not that high. So that's something that's always a nice investment to look at, to keep it, to add if it really drops and to rebalance if it really is expensive. Price earnings ratios are around 20, 5% earnings yield, the growth, they will grow at 5 to 10% over the next years in a cyclical way, so 5, 6, 7, 8% is what you have to expect from these companies in the long-term as an investment return. So 5 to 8%, not much of a difference when you compare to Apple, Amazon, Google, Microsoft, Berkshire, so there is really not an advantage that would lead me, okay, I'm going to buy this, this is going to be a great, great long-term investment. It might be good, but so will many other stocks be like the market, also will do good. So I don't really see a great margin of safety, more with Richmont, but I don't really see a benefit to my investing portfolio that really tries to outperform the market. So that's my view, perhaps you find value in this analysis and you add an interesting stock to your portfolio. Tomorrow I'm going to review the financial education channel's stock portfolio that he showed in a video yesterday, so that will be interesting and don't forget to subscribe to my newsletter to get a weekly overview of the videos I have made, of the articles I have written, not everything goes on the video and of other interesting things that I do also on the podcast. So get the newsletter so on Sunday you can just see, okay, this is for me, this isn't. Thank you for watching, looking forward to comments and I'll see you in the next video.