There are many ways to play consumer trends. When the market pulls back and the economy slows, it may make sense to focus on companies that can offer users the best price available.
However, companies that cater to luxury markets tend to face less of a slowdown. Even better, these companies tend to see their profit margins hold up, even as lower markets are in decline.
A slow economy and a down market tends to make for a good time to invest in companies catering to higher-end consumers. That can even play out in the housing market. Toll Brothers (TOL), a homebuilder focusing on the luxury market, may stand up better than its peers.
That’s because about 20 percent of Toll customers pay cash, rather than deal with a mortgage. And their homes sell for an average of about $1 million, making it the top luxury home builder.
Shares are own about 30 percent in the last year with the slowing housing market. But Toll Brothers grew revenues by 22 percent and earnings by 71 percent.
Action to take: Investors may like shares as a long-term play on the recovering real estate market. Investors should look to accumulate over the next few months and buy on down days for the stock. Shares yield about 1.6 percent at present.
For traders, a rebound is likely in the coming months. The June $60 calls, last going for about $2.45, offer mid-to-high double-digit gains. Traders could also look to take smaller profits more quickly.
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.