In early November, Christie's auctioned off the most expensive art work ever, with a winning bid of $127 million. Including Christie's commission, the final sale price was $142 million. The entire auction raised $691.6 million, the highest amount ever at a single auction.
Buyers at these auctions are the very wealthy. The pieces command multimillion-dollar prices, and can mean tens of millions of dollars in commissions for the auction house.
And the demand for these high-end collectibles has been growing.
In 2000, the global art market was around $20 billion, according to The Economist. Last year, it was $50 billion.
Since 2003, The Economist's "Valuables Index" - a weighted index of prices for fine art, philately, numismatism, and other collectibles - has outperformed the "rich world" stock index MSCI World 211% to 147%, including dividends.
Owning such collectibles is expensive: not only in purchase price, but also in the additional costs like insurance, storage, and security. Furthermore, the market is notoriously opaque, functioning on handshakes and reputations. It is not for the faint of heart.
Even so, non-billionaires can make money in this exclusive preserve. And one company is the best stock - the only stock - to buy now.
Stocks to Buy: BIDding for Future Growth
The night after Christie's shattered records, rival Sotheby's (NYSE: BID), the venerable 269-year-old auction house, broke its own single-auction record. Its auction of contemporary art brought in $380.6 million, including a $105.4 million Warhol.
Sotheby's tops the list of stocks to buy to profit from the lifestyles of the rich and famous.
Like Christie's, Sotheby's makes its money helping the very wealthy pursue their passions. Sotheby's revenues come from commissions on auctions, interest on loans secured by artwork, licensing Sotheby's name to realtors, and sales of its own impressive inventory of art.
It is an expensive line of work, and a highly seasonal one, with major auctions happening in the second and fourth quarters. Sotheby's quarterly results reflect this trend, with peak earnings and revenue reported for those quarters, and, typically, losses for the first and third quarters.
That translates into uneven earnings reports. For the nine months ended Sept. 30, 2013, Sotheby's posted net income of $39.25 million on revenue of $514 million. For the same period in 2012, net income was $42 million on revenue of $477 million - a decline in profit margin from 8.8% to 7.6%.
And Sotheby's performance is expected to improve. Consensus earnings per share estimates put the company at 2.29 for 2014, up 18% over this year's estimate of 1.93.
The company opened the fourth quarter with a record $538 million in sales from the Hong Kong sale series, a 105% increase over last year in that key growth market, and a $348 million Impressionist and Modern Art sale in New York. A few high-profile auctions scheduled for the year's end - including an extremely rare Colonial-era Bay Psalm Book - should strengthen the company's annual results.
BID has gained 77% over the last 12 months - a period of relative revenue and earnings weakness.
But there's one more huge reason to think that Sotheby's will continue to improve its income statement and its share price further.
His name is Daniel Loeb. He's the founder and chief executive officer of Third Point, LLC - a New York hedge fund. He's also an art collector himself and, as of this summer, the largest shareholder in Sotheby's, with 9.3%.
In the Oct. 2 letter announcing Third Point's position in Sotheby's, Loeb tore into the company's management. He accused it of spending far too much money for too little return, of having lost its competitive edge to Christie's and its command of the contemporary art market.
Sotheby's seems to be responding to Loeb's accusations. This summer, the company announced that it would undergo a thorough review of expenses and capital allocation, with results to be announced early in 2014. In addition, last week, Sotheby's announced that its chief auctioneer and global head of contemporary art Tobias Meyer will be stepping down.
Loeb specializes in unlocking value in undervalued companies. It was Third Point, for example, whose 2012 proxy battle saw the company's share price double, adding, in the words of the Q2 2013 letter to shareholders, $15 billion in value.
If he sees hidden value in Sotheby's, it's a good stock to buy now.
There's only one Sotheby's, but there's more than one way to buy stocks to profit off luxury goods. Sotheby's considers itself in a peer group with the luxury retailers, and there are a few retail stocks you should also buy right now.
The Most Expensive Art Ever Sold at Auction: Christie's Record Breaking Sale
The Wall Street Journal:
Sotheby's Sells $105.4 Million Warhol
Third Point's Dan Loeb Slams Sotheby's CEO
Fruits of Passion