Analyst highlights promising global stocks with luxury potential

The luxury sector has faced challenges recently, with notable brands like LVMH and Burberry experiencing a downturn in high-end spending. Despite this, Morningstar senior equity analyst Jelena Sokolova remains optimistic about companies adjacent to the luxury market, particularly in premium food, beverages, and apparel. She highlights Diageo, a British multinational beverage company, as a resilient long-term investment, despite its shares being down 11.4% year-to-date. Diageo's strong profitability and high barriers to entry make it a compelling choice, with analysts giving it a modest upside potential. Sokolova also identifies Zalando, a German online retailer, as her top pick in the apparel sector. The company has a significant customer reach and a solid cash position, allowing it to invest while competitors are scaling back. Zalando recently reported a 6.5% increase in EBIT, indicating strong performance, and expects full-year EBIT to be between 380 and 450 million euros. Analysts are largely positive about Zalando, with a substantial upside potential reflected in their price targets. The overall sentiment in the luxury market remains cautious, but Sokolova's focus on adjacent sectors suggests a shift in investment strategy. By identifying companies that can thrive despite the luxury sector's struggles, she points to a potential for growth in premium segments. This approach may offer investors opportunities to capitalize on trends that align with luxury consumption without directly investing in traditional luxury brands. As the market evolves, the performance of companies like Diageo and Zalando will be closely monitored, as they may provide insights into the resilience of adjacent sectors and their ability to capture consumer interest in a challenging economic environment.