In this article, we will look at the 10 Best Clothing Stocks To Invest In Now.
Trump’s Proposed Tariffs: How Will They Affect Retailers?
While the inflation figures have come down a little, they are still sticky. More consumers, even at higher income levels, are gravitating towards discounters. The reason is simple: prices are still higher than what they used to be. On November 26, Dana Telsey of Telsey Advisory Group appeared on CNBC to discuss the potential implications of Trump’s proposed tariffs on consumer prices and margin challenges for retailers.
She said that if the tariffs do come to fruition, the apparel industry will certainly be impacted. It is estimated that up to $80 billion in consumer spending could be impacted, which would require a double-digit increase in prices for some of the apparel goods.
Trends in the Holiday Shopping Season
Retail stocks are taking center stage with holiday shopping kicking off. However, the consumer spending front presents a dichotomy. While one side shows healthy consumer spending, the other side presents stretched credit and consumer spending patterns showing an increasing inclination for discounts.
On November 28, John San Marco, Neuberger Berman portfolio manager, joined CNBC’s ‘Closing Bell Overtime’ to discuss the recent trends in the retail sector. Listing how this season is different from the past few years, he said that real wages have been positive for a while now, with significant cohorts of consumers holding balance sheets in pretty good shape, particularly homeowners. There hasn’t been a discretionary comeback yet. Without any significant market disruption, he believes the season will see the consumer behave in a healthier fashion moving forward.
A significant consideration in the current holiday shopping season is whether retail investors should be concerned about a dynamic where some retailers bring inventory into the US ahead of the tariffs. Since this holiday season is expected to be relatively shorter, the retailers might have to discount their inventory to avoid having their warehouses too full.
Marco said that tactically figuring out the inventory inflow is complicated, made much more challenging by the volatility surrounding the election and the weather conditions. Some retailers may be able to capitalize on the situation’s unpredictability and buy stuff opportunistically. However, Marco is of the opinion that a premium on high-quality retailers that offer an unbeatable consumer value proposition is paramount.
Should Investors be Feeling Bullish About the Holiday Shopping Season?
On November 28, ‘Fast Money’ traders appeared on CNBC to discuss what to expect from retailers with the holiday season kicking off. Viewing the American retail sector through the lens of stocks soaring at all-time highs, the 2024 holiday season looks pretty positive.
However, there is another side to that coin as well, as some stocks are sinking to lows. Credit card debt is approaching $1.2 trillion, and delinquency rates are at a 13-year high. The situation thus presents a bifurcated retail environment. Despite this bleak side of the coin, people are feeling great about things at the present.
With a number of major events now in the past, people believe they are getting closure. The overall environment is simmering down, which is a tailwind for confidence in the analysts’ opinion. Agreeing with these points, Karen Finerman, Co-founder and CEO of Metropolitan Capital, said that markets and people both hate uncertainty. She believes that the market has risen a lot, and several other positive factors are making people feel better. Most retailers are positioned well on an inventory standpoint and can get good margins. She is thus comfortable with the current retail setup.
With these trends in view, let’s look at the 10 best clothing stocks to invest in now.
10 Best Clothing Stocks To Invest In Now
Our Methodology
For this article, we used the Finviz stock screener to identify around 15 clothing stocks and narrowed our list to 10 stocks with the most positive analyst upside from current levels. We also added the number of hedge fund holders for each stock, as of Q3 2024. The stocks are arranged in ascending order of their upside potential as of November 29, 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Clothing Stocks To Invest In Now
10. Zumiez, Inc. (NASDAQ:ZUMZ)
Analyst Upside: 11.16%
Number of Hedge Fund Holders: 15
Zumiez, Inc., is an apparel retailer that also sells footwear, accessories, and hard goods for young women and men. Its clothing and other items fit streetwear and action sports lifestyles. The company has more than 756 stores in the US, Canada, Europe, and Australia. Its brand portfolio includes Zumiez, Blue Tomato, and Fast Times.
The company’s brand portfolio and customer base are strong. Throughout 2024, Zumiez, Inc. has concentrated on reinvigorating its top-line sales through investments to continue gaining customer wins. Some of its initiatives to achieve this goal include infusing its product assortments with fresh offerings. Zumiez, Inc. launched more than 100 brands in 2022, more than 150 in 2023, and is on track to launch a similar number in 2024.
The continuous launch of these new brands gives the company a strategic advantage. Sales from its newly launched brands over the past couple of years account for a large portion of its current sales, reflecting their popularity among customers. It expects to continue this positive momentum by continuously expanding its private label share.
The company is also optimizing its store labor through various initiatives, including staffing model adjustments at lower-volume stores. It implemented structural changes to slash logistics and shipping costs company-wide, reduced discount selling compared to 2023’s elevated levels, and undertook other cost-saving initiatives throughout the organization.
Investors are thus bullish on the stock, as these adjustments to the company’s operating strategy, along with its strong balance sheet, position Zumiez, Inc. at a competitive position in the market and on a path to attaining its long-term goals.
9. Ross Stores, Inc. (NASDAQ:ROST)
Analyst Upside: 12.98%
Number of Hedge Fund Holders: 55
Ross Stores is an off-price apparel retailer that operates home fashion stores under two brands: Ross Dress for Less (Ross) and DD’s Discount. It operates over 1,764 Ross store locations in 43 US states, the District of Columbia, and Guam. The company also has more than 345 DD’s Discounts stores across 22 US states. Customers can find discounted in-season designer and name-brand apparel at the company’s stores, along with footwear, accessories, and home fashion. These discounts typically vary from 20% to 60% compared to department and specialty store regular prices, giving the company a competitive market edge.
With consumers looking for discounts and deals instead of giving in to brand loyalty in the current retail environment, investors are bullish on the stock. Ross Store, Inc. undertook an expansion program for 2024, completing it during fiscal Q3 2024 with the addition of 43 new Ross and four DD’s Discount stores. It added a total of 89 locations for the year, comprising of 75 Ross and 14 DD’s Discount stores. The company has plans to relocate or close seven locations in fiscal Q4 2024, and expects to end 2024 with 1,831 Ross stores and 354 DD’s Discount stores.
The company’s expansion strategy is working, as its total sales for fiscal Q3 2024 grew to $5.1 billion, up from $4.9 billion in the prior year. However, its fiscal Q3 2024 sales slowed compared to the solid gains it reported in the first half of 2024. This softness was primarily attributed to a combination of severe weather from Hurricane Hilton and Lane during the quarter, along with unseasonably warm temperatures. However, Ross Stores, Inc. is working to reverse the effects of these short-term headwinds by focusing on its merchandising initiatives. Ross Stores, Inc. ranks ninth on our list of the 10 best clothing stocks to invest in now.
In its fourth-quarter 2023 investor letter, TimesSquare Capital Management mentioned Ross Stores, Inc. (NASDAQ:ROST):
“In Consumer-oriented sectors, we lean towards value-oriented or specialty retailers, franchise models, as well as premium brands. Also gaining 23% over the quarter was Ross Stores, Inc. (NASDAQ:ROST), an off-price retailer featuring apparel and home fashions. Third-quarter results were solid as sales comparisons accelerated with higher levels of customer traffic across geographies. Management raised full-year guidance. We added to the position given our increased conviction at the start of the quarter.”