Buy High

They used to call it trickle-down economics. That’s when the government gives tax breaks to the rich, who then invest in new enterprises, which hire the lumpen proletariat. Given the anemic job creation we’ve seen since President Bush successfully pushed for incredibly generous tax breaks for the wealthy, perhaps it’s time to acknowledge that such a policy deserves the damning “trickle” sobriquet. The money’s not wending its way to those who need it most. Given the historically low rates of interest from bonds, however, the money’s not sitting idly in vaults or getting salted away in muni bonds, either.

So where are all of those untaxed dollars going? Simple: to anyone and everything that sells to the high end of the economic spectrum. The money might drip toward the unwashed in the end, but right now it’s raining torrentially on a handful of public companies that cater to the whims and excesses of those who can afford not to look at price tags.

The Incredible Rich Person Spending Spree hasn’t dawned on Wall Street yet. For most of the past decade, the hot theme for hot investment money was the downscaling of America. Customers, rich and poor, flocked to value: You used to see as many Lexuses as Chevys at a BJ’s or a Costco. Dollar stores proliferated like dandelions. Wal-Mart became a destination store for millions. All of this happened while the high-end languished. Stores like Neiman Marcus and Nordstrom were considered things of the past: overpriced, expensive playgrounds for those few who could choose to be non-economical.

Not anymore. While the analysts who work for the sell-side firms haven’t yet figured out the trend and are still keeping estimates ridiculously low for the companies that cater to the idle rich, the stocks have begun to take off. Here’s your portfolio:

First, there’s Neiman Marcus Group. Here’s a company that most of us had written off in the nineties, when casual Friday became casual Every Day, and even top Wall Street executives abandoned Brioni suits and Zegna jackets for Banana Republic sweaters and Dockers. The casual look’s out now, tailored foreign suits are in, and Neiman’s pushing $30,000 vicuña suits for those unhappy with dropping three Gs for Italian 150s. Neiman’s just reported a whopper quarter, with virtually unheard-of double-digit year-over-year same-store increases. I think there’s more to come—its ultimate luxury group, the Bergdorf brand, with its new Website, BergdorfGoodman.com, sold 17 percent more goods this past August than in the same month last year. Remember, these huge comparable-store increases come at a time when Wal-Mart’s been struggling to beat 2 to 4 percent gains for a like period. Neiman’s stock still sells on par with so-called value stores like Kohl’s and Dillard’s, but that will change if—and when—the company keeps delivering these outsize numbers.

“The IncredibleRich PersonSpending Spreehasn’t dawned on Wall Street yet. But the stocks have begun to take off.”

Next, look at Whole Foods. The wealthy consumer has become health-conscious. She’s convinced that the mainstream food manufacturers do unholy things to their products, and she’s willing to pay a premium to ensure that the stuff she puts in her family’s bodies won’t end up killing them. By actually having standards about what it sells, instead of taking money under the aisle to feature merchandise, Whole Foods has earned the trust of the discerning wealthy shopper. In other words, WFMI charges an arm and a leg and no one seems to care. I didn’t know how pervasive the Whole Foods phenomenon had become until I dropped in to sightsee in the colossal Time Warner Center store and bumped into four partners from Goldman Sachs. The chain’s got plenty of room for expansion, and may be the only supermarket immune from Wal-Mart’s low-cost, downscale push into groceries.

Harman International’s been stunning Wall Street for several quarters now—people can’t figure out how this once-humdrum electronics maker puts up such huge numbers. The answer is, it’s got a hammerlock on the sophisticated home and auto sound systems the rich now can’t seem to live without. Whether it’s the Mark Levinson system that comes standard with the fully loaded Lexus convertible or the JBL home sound system for those who insist on theaterlike screenings, Harman owns the most expensive, least sensitive-to-price band of the market. Most of the people buying Harman don’t even know they’re buying it (the company makes the sound systems for all the top Benz and BMW models), and they know even less about how much the items actually cost because the equipment is part of a larger package sold by a contractor or an auto maker. All the better to jack up HAR’s margins.

Home builders are all booming, courtesy of the Federal Reserve’s largesse on short rates, but only Toll Brothers caters almost exclusively, and incredibly successfully, to those who want instant mansions, the $750,000-and-up luxury-home class. With the Fed expected to raise rates several more times, the lower-end builders might feel some pressure, but Toll’s more reactive to the tax cuts for the rich than the starter rates for the parvenus. It also has land banked galore, so it can build luxe homes for years without running out of sites.

When Coach reported its second quarter recently, analysts reacted with shock. To a person, they had no idea that Coach’s most luxurious and pricey leather goods, the limited editions and the Yellow Brick Road line, would be difficult for stores to keep in stock. They hugely underestimated the demand. Coach didn’t. The company shrewdly bought back 2 million-plus shares of stock much lower than it’s priced now, while Wall Street fretted that $200 to $300 bags and gloves wouldn’t sell. Coach could be the ultimate high-end Christmas play.

To round out the portfolio, consider a trio of handheld-electronics companies that have become so fashionable among the wealthy that any trickle-down to the middle class could explode the earnings. First is Apple. The iPod simply can’t stay stocked. Ask my 13-year-old, who got her birthday present a month late. Hey, I’m no lout; I started my quest for a pink iPod mini a month before the big day, but Apple’s been in short supply this quarter. Don’t worry: The company’s assuring the Street that there will be plenty of product available for Christmas. Next is Research in Motion. The still smokin’-hot BlackBerry remains the workhorse for the CEO and the investment banker, so price is no option. I thought RIMM owned the high-end market until I camped out for a week at the Four Seasons in Beverly Hills, where the totally wired bar and restaurant maître d’ confirmed my anecdotal judgment that PalmOne’s Treo is taking the market by storm. So I’d pick up some depressed PLMO while I’m at it.

What if Bush loses? Doesn’t matter. It would take a Kerry win and a rollback of the tax cuts to change the trajectory of these nine equities. Considering that we are only in year one of the tax benefits, I suspect that these companies could take up full-time residence on the tony end of the new-high list for some time. You’re in the know early. Get a piece of them before it’s obvious that they’re winners, to rich and poor alike.

James J. Cramer is co-founder of TheStreet.com. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time.

Buy High