In this article, we present to you the 10 best fashion and apparel stock to invest in.
The dynamic world of fashion was introduced around the 19th century when Charles Frederick Worth sewn labels into the garments he created. It was long before that when fashion standards were derived solely by the styles worn by royalty. In a definition by Value Line “The Apparel Industry consists of companies that design and sell clothing, footwear, and accessories. Product categories include everything from basics, such as underwear, to luxury items, for example, cashmere sweaters and alligator-skin handbags. Traditionally, apparel companies were wholesalers, selling large quantities of goods to retailers, which then marked-up items and sold them to consumers at a profit. However, it’s become more difficult to draw a line between wholesalers and retailers; most apparel companies now have both types of operations.“ In an article, we shared the 10 Most Expensive Fashion Brands In the World.
The Covid-19 pandemic has left a mark on many industries across the market. Considering that fashion and apparel were considered as “non-essential”, the industry was not immune to this. According to the US Census Bureau, US clothing and clothing accessories sales went down by 50.5% in March 2020. In a survey conducted by International Textile Manufacturers Federation (ITMF), globally, current orders dropped by 31% on average.
Pixabay/Public Domain
During the pandemic, the sector maximized the use of e-commerce to help boost their sales. For instance, Zalando, a Berlin-based company reported its gross merchandise sales grew as much as 34% which was credited to shoppers buying more digitally. According to DataFeedWatch, By 2020, the statistics for e-commerce in the fashion industry is projected to rise further to $714 billion.
With the success of the fashion and apparel industry, it is no doubt that the industry will continue to have positive growth despite the pandemic. However, investing in these stocks can be tricky. During an economic recession, consumers tend to stray away from purchasing new apparel. Yet, they acquire the potential to offer good earnings and capital gain. Not only is the industry huge, but it also has seasonal higher demand during the holidays.
The Biden Administration is reconsidering the Trans-Pacific Partnership (TTP) to showcase the US presence in the Asia-Pacific Region with around $374 billion. Many of the members of the ASEAN are key apparel sourcing bases for US fashion brands. An associate professor at the Department of Fashion and Apparel Studies at the University Delaware, Dr. Sheng Lu commented
“The case is pending, but the stakes are high for fashion companies – Vietnam is often seen as the best alternative to sourcing from China and already accounts for nearly 20% of total US apparel imports.”
In order to identify the 10 Best Fashion and Apparel Stocks to Invest In, we identified the list of apparel stocks that trade in the US exchanges through Google searches and we were able to narrow down our list to 10 stocks based on our hedge fund sentiment scores.
Our in-house research showed that by using the hedge fund sentiment data, we can identify a small group of stocks that can outperform the S&P 500 index on average by double digits annually. For instance, the portfolio for stock picks for our monthly newsletter has beaten the market by over 88 percentage points since March 2017 (see details here). Some of the portfolio choices for our monthly newsletter were also publicly shared on our website. In October, we posted this real estate stock and since then it’s been up more than 50 percent.
Based on our hedge fund sentiment data, we present to you the 10 best fashion and apparel stocks to invest in among 800+ hedge funds tracked by Insider Monkey:
10. Columbia Sportswear Company (NASDAQ:COLM)
No of HFs: 19
Total Value of HF Holdings: $48 Million
We start the list of best fashion and apparel stocks to invest in with COLM. At the end of September, a total of 19 hedge funds tracked by Insider Monkey were long this stock. The top hedge fund holder of this stock is Richard Scott Greeder’s Broad Bay Capital which had $11 million invested in the stock at the end of September. The company is known for its outerwear, sportswear, and footwear. Recently, the company announced the appointment of Skip Potter to the New Chief Digital Information Officer Role. Time Boyle, Chairman, CEO, and president mentioned that he is thrilled to have Skip’s leadership on board,
“Elevating our information technology and digital capabilities will continue to be a critical component to the success of our business. I’m thrilled to have Skip’s leadership on board to drive and enable the growth and continued transformation of our business.”
9. V.F. Corporation (NYSE:VFC)
No of HFs: 22
Total Value of HF Holdings: $457 Million
VFC ranks 9th on our list of the best apparel stocks to buy now. The top hedge fund holder of this stock is Ric Dillon’s Diamond Hill Capital which had $337 million invested in the stock at the end of September. An insider recently purchased 3,500 shares at around $60 in June 2020. The stock is up 30% since then. Diamond Hill Capital mentioned VFC in its Q1 2020 investor letter:
“We reinitiated a position in consumer apparel manufacturer V.F. Corp. (VFC) after selling our previous position when it reached our estimate of intrinsic value in late summer-fall of 2019. The stock price declined at the beginning of this year on a deceleration in revenue trends, then declined sharply with the broader market amid concerns about the COVID-19 virus. Given our positive view on VFC’s potential to drive mid-single-digit long-range growth in its key brands, its strong management team, strong liquidity position, evolved digital platform, and potentially more attractive acquisition opportunities due to broad-based declines in footwear and apparel valuations, we decided to add VFC back to our portfolios.”
8. Carter’s Inc. (NYSE:CRI)
No of HFs: 26
Total Value of HF Holdings: $222 Million
CRI ranked 8th on our list of the best fashion and apparel stocks to invest in. At the end of September, a total of 26 hedge funds tracked by Insider Monkey were long this stock. Palm Valley Capital mentioned CRI in its recent investor letter:
“Carters (CRI) is the largest branded marketer in North America of apparel for babies and children and owns the Carter’s, OshKosh, and Skip Hop brands. Although COVID-19 related store closures will temporarily impact Carter’s retail operations, we believe the firm will emerge from the shutdown with its market leadership intact. Moreover, we think sales of baby and kids’ clothes will better endure a period of economic difficulty.”
7. PVH Corporation (NYSE:PVH)
No of HFs: 28
Total Value of HF Holdings: $713 Million
PVH ranked 7th on our list of the best fashion and apparel stocks to buy now. The top hedge fund holder of this stock is Richard S. Pzena’s Pzena Investment Management which had $439 million invested in the stock at the end of September. An insider recently purchased 1,981 shares at $81 in September 2020. The stock is 1% since then. PVH is known for its high-end clothing brands such as Van Heusen, Tommy Hilfiger, and Calvin Klein. Recently, the company appointed a new Chief Executive Officer, Stefan Larsson. He commented saying that it is a humbling opportunity,
“This is a deeply humbling and exciting opportunity. I am honored to become CEO to build upon the industry-leading business and values-driven organization that Manny has shaped during his 15 years as CEO, and continue the exceptional people-first culture and purposeful commitment to corporate responsibility that he has championed at PVH. My focus is on building upon the core strengths that brought us here and connecting them closer to where the consumer is going than any time before, which will form the foundation to successfully deliver our next chapter of growth.”
6. Ralph Lauren Corporation (NYSE:RL)
No of HFs: 29
Total Value of HF Holdings: $473 Million
RL is the 6th best clothing stock to invest in. At the end of September, a total of 29 hedge funds tracked by Insider Monkey were long this stock. An insider recently purchased 3,770 shares at around $66 in October 2020. The stock is up 54% since then. RL was mentioned as one of the 10 Most Expensive Fashion Brands in the World. Heartland Value Plus Fund mentioned a few of its comments on RL in its Q3 2020 investor letter:
“The business climate remains cloudy. As such, we continue to seek companies trading at attractive valuations, with strong management teams and that have avenues to succeed under multiple scenarios. For example, we initiated a position in Ralph Lauren Corp. (RL), a global lifestyle company that sells clothing, accessories and home goods.
Shares of Ralph Lauren tumbled earlier this year during the COVID-19 selloff. The stock has yet to fully recover as investors continue to cast a skeptical eye toward apparel companies and retail brands in the Consumer Discretionary space. While the global pandemic has been a severe blow to the beleaguered apparel industry, we view Ralph Lauren as a relative winner in the space.
Ralph Lauren is a best-in-breed brand with high gross profit margins and a loyal clientele. Management is using the disruption from the pandemic to accelerate cost-cutting efforts and pivot to an e-commerce growth model. With approximately $800 million in net cash on its balance sheet, we believe Lauren is well prepared to weather current headwinds in retail and should increase sales and earnings in the long-term. Despite our favorable outlook, shares are trading at roughly 6x enterprise value/next year’s earnings before interest, taxes, depreciation and amortization.”
5. Capri Holdings Limited (NYSE:CPRI)
No of HFs: 36
Total Value of HF Holdings: $426 Million
The top hedge fund holder of this stock is Ricky Sandler’s Eminence Capital which had $133 million invested in the stock at the end of September. An insider recently purchased a 50,178 share at around $28 in August 2019. The stock is up 46% since then. Avory & CO mentioned a few of their comments on CPRI in its 4Q 2020 investor letter:
“John Idol, was amongst the most nimble and resilient CEOs in 2020. Capri, as most of the retail sector, faced various challenges; 1) Supply disruptions in their leather goods as a result of the large impact covid had on Italy, 2) Dwindling demand as brick and mortar locations were forced to shut down globally and 3) Debt due in December of 2020. John acted quickly and reduced his cost base through global furloughs, delayed reopenings, turned to social selling and clienteling, was able to refinance all the debt in 2020 and pushed it out multiple years, along with getting their three brands, Jimmy Choo, Versace, and Michael Kors to positive or mid negative single-digit comparable sales by August. Coming out of Covid Capri is a leaner business. Versace is realizing positive sales, and they now expect 2020 to be a profitable year. We believe that this type of management execution can and should totally transform the narrative around this company for many years to come.”
4. Cintas Corporation (NASDAQ:CTAS)
No of HFs: 38
Total Value of HF Holdings: $741 Million
Diamond Hill Capital mentioned a few of their comments in the stock in its Q1 2020 investor letter:
“Cintas Corp. provides U.S. businesses with uniform rental services and restroom cleaning, first aid, safety and fire protection goods and services. We re-initiated a short position in Cintas as we believe the stock price does not reflect the likelihood its results will be hard hit by increases in unemployment caused by the COVID-19 pandemic.”
3. Tapestry, Inc. (NYSE:TPR)
No of HFs: 39
Total Value of HF Holdings: $670 Million
TPR is the 3rd best fashion and apparel stock to invest in. The top hedge fund holder of this stock is Ken Griffin’s Citadel Investment Group which had $118 million invested in the stock at the end of September. An insider recently purchased 12,980 shares at around $15 in August 2019. The stock is up 106% since then. The company is known to be the first new work based house of modern luxury lifestyle brands. They were recently named as the “Best Place to Work for LGBTQ Equality” in Human Rights Campaign’s 2021 Corporate Equality Index. Joanne Crevoiserat, Chief Executive Officer of Tapestry, Inc said,
“We strive to foster an inclusive culture and to champion the individuality and diverse perspectives of our people. We are incredibly proud to receive this recognition for the seventh consecutive year, and will continue to take action on our commitment to ensuring that all of our employees feel respected, supported and valued.”
2. Under Armour, Inc. (NYSE:UAA)
No of HFs: 48
Total Value of HF Holdings: $846 Million
UAA is known for its game-changing sports apparel, athletic shirts, shoes, and accessories. The company recently announced their mutual agreement with Southampton FC to part ways. In a statement,
“Under Armour and Southampton FC have valued the relationship over the last four years and will continue to celebrate the on and off-pitch accomplishments shared together. The club thanks Under Armour for being a great partner and wishes them continued success in their future endeavors.”
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1. Lululemon Athletica (NASDAQ:LULU)
No of HFs: 50
Total Value of HF Holdings: $1.27 Billion
The top fashion and apparel stock to invest in is LULU. At the end of September, a total of 50 hedge funds tracked by Insider Monkey were long this stock. The top hedge fund holder of this stock is Ken Griffin’s Citadel Investment Group which had $264 invested in the stock at the end of September. LULU was mentioned as one of the 12 Best Fitness Stocks to Buy Now. Brown Advisory mentioned a few of its comments on LULU in its Q2 2020 investor letter:
“The recent market volatility afforded us the opportunity to swap out of our position in TJX Companies into Lululemon Athletica. While nothing at TJX was broken, our action was purely an upgrade from one good business model into an even better one, in our view. We believe Lululemon has an exceptional business model within the athleisure apparel space. The company has complete control over its product line distribution, which is rather unique for an apparel company. This gives the company a favorable margin structure, coupled with a fast-growing top line. As compared to TJX, Lululemon also benefits from a higher percentage of sales from e-commerce, which is becoming more important in the near and long term.”
Please also see 10 Most Expensive Fashion Brands In the World and 10 Underperforming Stocks Targeted By Short Sellers.
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This article is originally published at Insider Monkey.