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The luxury sector has had a tough few months, with sales of well-known names such as LVMH and Burberry hit by a decline in high-end spending. But one analyst is bullish on under-the-radar names in a segment adjacent to the luxury market. “I like the luxury space , but long-term I think there is also good potential in the adjacencies to luxury like premium food and beverages players and apparel companies,” Morningstar senior equity analyst Jelena Sokolova told CNBC Pro. “Beverage companies are exposed to the same trends as luxury plays,” she added, naming Diageo as a company to watch. The British multinational counts brands like Johnnie Walker, Guinness, Baileys and Hennessy in its portfolio. Shares in the spirits giant are listed on the London Stock Exchange and trade as an American Depositary Receipt (ADR) in the U.S. Its shares are down 11.4% year-to-date, but are showing some signs of picking up. Shares hit a four-year low after the company announced it had missed full-year profit estimates . Sokolova remains bullish on Diageo as a long-term play: “It is a resilient business with high barriers to entry and very strong profitability.” According to Factset data, of 24 analysts covering Diageo, eight give the stock a buy or overweight rating while 11 have a hold rating and five have sell calls. Their average price target is £2,599.52 ($3,429.03), giving it 2.7% potential upside. ‘Top pick’ Another company on Sokolova’s radar is German online retailer Zalando. Calling it her “top pick” in the apparel sector, the analyst likes that it is the “biggest in its space in terms of customer reach and cash on the balance sheet.” “I also see the company investing when their competitors are undergoing retrenchment exercises,” she added. Zalando recently reported a 6.5% jump in its earnings before interest and taxes (EBIT) to 171.6 million euros ($190.9 million) in the second quarter. The retailer expects its full-year EBIT to come between 380 and 450 million euros. Zalando’s shares are listed on the Frankfurt Stock Exchange and trade as an ADR in the U.S. Year-to-date, its shares are up around 16%. Of the 25 analysts covering the stock, 18 give it a buy or overweight rating, while six have hold calls and one has an underweight rating. The average price target on the stock is 33.43 euros, according to FactSet data, giving it just above 34% upside potential. — CNBC’s Jenni Reid contributed to this report.
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