Artificial intelligence (AI) continues to dominate the headlines and drive equity markets higher. Investors’ attentions have been captivated by the record-breaking SpaceX (NASDAQ:SPCX) IPO and excitement surrounding the upcoming stock market debuts of Anthropic and OpenAI.
However, the arrival of these AI titans on the stock market means investors’ exposure to the broader technology theme is increasing significantly. For those looking to diversify portfolios away from all-things-tech, investors might look to less obvious opportunities elsewhere.
EssilorLuxottica – a smart investment?
Consumer-facing sectors are out of favour relative to technology. And yet a number of their constituents offer indirect exposure to AI trends that should boost their earnings over time. One exemplar is eyewear company EssilorLuxottica (EPA:EL). This Franco-Italian company stands to benefit from Meta’s (NASDAQ:META) push into smart glasses.
| EssilorLuxottica | Share price: €174 |
| Market cap: €80.3bn | PE: 35 |
Source: Google Finance
For the uninitiated, EssilorLuxottica and Meta recently launched Meta Glasses, a new AI eyewear collection. The move deepens EssilorLuxottica’s role at the intersection of eyewear and consumer tech, as it brings AI features into Rx-able, everyday frames aimed at mass-market adoption.
Another demographic trend investors might seek to capitalise on is a shift in spending among younger consumers. For many, home ownership looks increasingly out of reach, so they are redirecting their discretionary spending towards goods and experiences. This could be a powerful tailwind for a US-listed homestays and experiences platform – read more about it below.
In this article, Sharesify asks four experts to highlight the consumer-related companies whose attractions they believe remain under-appreciated by the market.
The Airbnb believer
First up is Brook Harris, a global equity analyst at Sarasin & Partners. Despite AI continuing to dominate the investor debate, Harris insists there are attractive stock picking opportunities across the consumer landscape.
‘Whilst it is unclear what the ultimate impact on consumption from AI adoption will be, there are certain categories that AI cannot replicate, such as travel and live experiences,’ he tells Sharesify.
One name he favours in the current environment is Brian Chesky-bossed accommodation platform Airbnb (NASDAQ:ABNB). ‘Over time, Airbnb stands to benefit from an imbalance between lodging demand growth and growth in traditional lodging supply,’ explains Harris.
In the near-term, Harris observes that the wealth effect from continued stock market gains is boosting demand from wealthier consumers who are looking to travel abroad. ‘Linking back to AI, the founder-led business is actively seeking to incorporate AI on the platform in order to improve the customer experience,’ he enthuses.
| Airbnb | Share price: $147.3 |
| Market cap: $87.4bn | PE: 36.3 |
Source: Google Finance
The NASDAQ-listed firm also looks to have ‘a strong defence against AI disintermediation given the large proportion of unique listings on Airbnb.’
Quality on sale
Ben Peters, manager of investment fund Evenlode Global Income (BF1QMV6), says the AI theme has become the ‘juggernaut’ of the global stock market. ‘Fuelled by promises of growth, this momentum has left many high quality businesses in its wake in market performance terms and thus trading on historically low valuations,’ notes Peters.
He says consumer goods companies from food giant Nestle (SWX:NESN) to cosmetics colossus L’Oreal (EPA:OR) and luxury conglomerate LVMH (EPA:MC) have had to contend with the effects of post-covid inflation and soft demand.
| Nestle | Share price: CHF 84 |
| Market cap: CHF 216.3 | PE: 24 |
Source: Google Finance
‘But they have shown themselves able and willing to deal with this and continue to generate the returns on capital that ultimately drive shareholder returns,’ insists Peters.
‘That they are trading at knock-down valuations more than account for the near-term slowdown that some have experienced. For those that like to receive some cash up front the 3% to 4% yields on offer, in some cases slightly more, provide some jam today whilst waiting for these companies, trading on attractive valuations, to come back into fashion.’
Recurring revenues
Brendan Gulston, manager of WS Gresham House UK Multi Cap Income Fund (BYXVGS7) is a fan of consumer discretionary industry name Bloomsbury (LON:BMY). The Harry Potter publisher is ‘built on valuable, rights-rich content and a powerful backlist’, according to Gulston.
He says Bloomsbury is a high quality business that enjoys resilient, recurring revenues and strong margins. Bloomsbury’s strengths also include a large addressable market opportunity and a robust net cash balance sheet.
‘Earlier this year the announcement of two new Sarah J. Mass titles drove double-digit percentage earnings upgrades through FY2027, providing tangible evidence of Bloomsbury’s ability to outperform market assumptions,’ recalls Gulston.
| Bloomsbury Publishing | Share price: 633p |
| Market cap: £516.6m | PE: 19.3 |
Source: Google Finance
These upgrades provided investors with a ‘clear reminder that this is a business capable not only of resilience, but of repeated upside surprises’.
Gulston enthuses: ‘Bloomsbury is able to further monetise its content through commercial partnerships with AI and large language model (LLM) providers, which is evidenced through a non-exclusive AI licensing agreement within its Academic & Professional segment.
‘In an age of fleeting digital attention, Bloomsbury’s success highlights the enduring appeal of books as a form of entertainment and education, and the stock remains a compelling long-term opportunity.’
Retail resilience
Greg Eckel manages investment trust Canadian General Investments (LON:CGI). With almost £2 billion in assets at last count, the fund’s top 10 includes AI beneficiaries such as Nvidia (NASDAQ:NVDA) and Celestica (TSE:CLS).
Yet Eckel is alive to compelling investment options in less racy parts of the stock market. Currently, he is finding opportunities at both ends of a bifurcated retail market – premium brands on one side, value offerings on the other.
‘In the former category, we recently invested in Aritzia (TSE:ATZ), an “everyday luxury” fashion retailer with a loyal following,’ says Eckel. ‘With revenue growth above 20%, expanding margins, and an e-commerce platform selling into 180 countries and growing at above 30%, its model is a testament to brand power and quality compounding.’
Eckel concedes Aritzia’s Canadian store rollout is essentially complete. However, the US opportunity ‘remains vast, with just 71 stores against a management target of 150’. The manager is also a fan of Canada’s largest value retailer. He insists Dollarama (TSE:DOL) offers both defensive characteristics and growth.
| Dollarama | Share price: $187.6 |
| Market cap: $50.8bn | PE: 38.6 |
Source: Google Finance
‘When times are tough, consumers trade down; when times are good, cost-conscious shoppers go for convenience and value,’ enthuses Eckel. ‘This consistent model has proven its ability to deliver through both ends of the economic cycle. And Dollarama is more than a steady, reliable domestic compounder – it is also expanding internationally, replicating its proven model in Latin America and Australia.’
Eckel adds: ‘As bottom-up, sector-agnostic investors, we are drawn to businesses whose success is not dependent on macro factors. These companies have delivered strong operating performance despite the broader consumer headwinds, taking share from weaker competitors in the process.’
