In this article we present the list of 11 Best Fashion Stocks To Buy Now.
If you’re in the market for fashion stocks, then NIKE, Inc. (NYSE:NKE), Lululemon Athletica Inc. (NASDAQ:LULU), and Abercrombie & Fitch Co. (NYSE:ANF) should be at the top of your list.
It’s been a volatile few years for the apparel and fashion industry as a whole, and its companies’ share prices in particular. Sales at clothing and accessories stores sank by 26% year-over-year in 2020, as pandemic lockdowns across the globe shuttered stores and kept people lounging around in their sweats at home.
After a year of barely updating their wardrobes, consumers went crazy catching up for lost time in 2021 as societies reopened and people began socializing again. Sales jumped by 60% during the first nine months of 2021 and continued to be strong through the first half of this year.
Another slowdown for the industry appears to be underway now however, with inflation and depressed consumer sentiment driving fashion sales into negative territory in the second half of this year. McKinsey predicts that the industry will grow by about 2-3% during 2023, primarily due to solid sustained growth in the luxury fashion market, which is expected to grow between 5-10%.
That’s not surprising given that luxury retailers and other sellers of high-priced goods tend to weather economic storms better thanks to their focus on the wealthy consumer, who isn’t as affected by economic downturns.
The fashion market is expected to be strong in both China and the United States, growing by as much 6% or 7% in each country, while an energy crisis in Europe is expected to lead to a 1% to 4% downturn for the fashion market in that region next year.
As cash-strapped consumers more carefully consider their clothing options, the rise of secondhand apparel is becoming apparent and represents another challenge for apparel brands and retailers. The secondhand market is expected to grow by 24% to $119 billion this year and to reach $218 billion in sales by 2026. Meanwhile, the broader apparel market is expected to grow at a CAGR of 8.6% through 2026, hitting $843 billion, and those projections might be somewhat optimistic.
The secondhand trend is particularly pronounced in North America, where secondhand apparel has been outgrowing the broader apparel market by a staggering 700%. In response, some fashion brands are beginning to launch their own resale initiatives to bring some of that market back within their own ecosystem.
All told, it could be a lean year or two for some or even many fashion companies and their corresponding shares, which makes pinpointing only the best fashion stocks to buy now a priority for investors interested in the space. We’ll do that in this article, using the smart money sentiment as our guide to which fashion stocks are likely to perform well in the years to come.
Our Methodology
The following fashion stocks are ranked based on hedge fund sentiment. We follow a select group of hedge funds because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q3 2022 reporting period.
11 Best Fashion Stocks To Buy Now
11. Tilly’s, Inc. (NYSE:TLYS)
Number of Hedge Fund Shareholders: 15
Abercrombie & Fitch Co. (NYSE:ANF), NIKE, Inc. (NYSE:NKE), and Lululemon Athletica Inc. (NASDAQ:LULU) rank among the top five best fashion stocks to buy right now. Just cracking the list in 11th is Tilly’s, Inc. (NYSE:TLYS), which sells apparel and accessories geared towards kids and teens.
Hedge fund ownership of Tilly’s, Inc. (NYSE:TLYS) peaked in the third quarter of 2018 and has declined by 33% since. It did tick up during Q3 of this year however, as multiple funds opened small stakes in the company. Among them were Israel Englander’s Millennium Management and Frederick Disanto’s Ancora Advisors.
Tilly’s, Inc. (NYSE:TLYS) was a big beneficiary of the pandemic, but has struggled to match up against those tougher comps in 2022. The third quarter wasn’t great, but the company did perform better than both it and the market expected, pulling in $178 million in revenue and $0.17 per share in earnings, both of which beat estimates. Comparable net sales in Q4 had declined by 18.5% through November 29 compared to the year-ago period.
10. Guess’, Inc. (NYSE:GES)
Number of Hedge Fund Shareholders: 17
Hedge funds bailed on Guess’, Inc. (NYSE:GES) in droves during the first quarter, as there was a 41% decline in the number of smart money managers long the stock. There was a slight rebound in Q2 as Jim Simons’ Renaissance Technologies and Lee Ainslie’s Maverick Capital were among the funds to add GES to their 13F portfolios.
Guess’, Inc. (NYSE:GES) has hung in there somewhat better than Tilly’s this year, growing Q3 sales by 10% year-over-year on a constant currency basis thanks to continued strong performance in Europe. The jeans and apparel maker’s operating margin stood at 8.6% in Q3, down from 14.1% a year earlier, though company expects that figure to rebound to 13.2% in Q4 on an adjusted basis.
Guess’, Inc. (NYSE:GES) is undergoing several initiatives to improve its customer acquisition and retention efforts, as well as its marketing capabilities. Chief among them is the company’s Customer 360 platform, some of which has already been implemented in Europe with promising results. Guess has also been growing its digital business, including its data analytics capabilities.
9. Ralph Lauren Corporation (NYSE:RL)
Number of Hedge Fund Shareholders: 22
There’s been a 29% drop in the number of hedge funds long Ralph Lauren Corporation (NYSE:RL) over the past two quarters, with the stock hitting a ten-year low in smart money ownership as a result. Ray Dalio’s Bridgewater Associates sold off its stake in RL during Q3, while Arrowstreet Capital, founded by Peter Rathjens, Bruce Clarke and John Campbell, held the largest long position, consisting of 801,348 shares.
Ralph Lauren Corporation (NYSE:RL) could be poised for a good holiday season if demand trends for the high-end fashion retailer are strong, as the company significantly bolstered its inventory ahead of the fourth quarter to stave off any potential supply chain challenges. High-end retailers tend to perform better during economic downturns due to their wealthier clientele being less affected by the conditions of the day, which the company appears to be banking on.
There are some troubling signs in the company’s recent results however, which may be why hedge funds have been bailing on the stock. Ralph Lauren grew sales by 13% in its Q1 of fiscal 2023, but sales growth slowed to 5% year-over-year in its fiscal Q2. Ralph Lauren Corporation (NYSE:RL)’s bottom line has also been getting pinched due to rising cost of goods sold, which jumped by 14% in fiscal Q2, dwarfing the company’s sales growth. That contributed to earnings falling to $2.23 per share compared to $2.62 a year earlier, despite the company having also bought back over 6 million shares, or about 8.4% of its outstanding float prior to those purchases.
8. Victorias Secret & Co. (NYSE:VSCO)
Number of Hedge Fund Shareholders: 24
Hedge funds showed noteworthy interest in Victorias Secret & Co. (NYSE:VSCO) during its first quarter on the market as a publicly traded company following its separation from Bath & Body Works, Inc. (NYSE:BBWI) in Q3 of 2021. That interest has waned considerably in the four quarters since however, as there’s been a drop in hedge fund ownership of VSCO during each of those quarters.
The lingerie retailer was spun off in part so a new management team could take charge and help turn around the struggling company, which suffered a major sales drop during its fiscal 2020 year. Victorias Secret & Co. (NYSE:VSCO)’s gross margins have trailed its peers by a wide margin (pardon the pun?), which is something management has been focused on improving, with some success, but more work remains to be done.
Victorias Secret & Co. (NYSE:VSCO)‘s Q3 comparable sales slumped by 11% year-over-year, with the company pulling in $1.32 billion in sales, in line with estimates. The retailer’s EPS of $0.29 topped estimates by a healthy $0.06 and also came in ahead of the company’s own guidance. Cowen analyst Jonna Kim has a $45 price target and ‘Outperform’ rating on VSCO shares. The analyst believes the company’s sales will remain pressured in the near-term, but that longer-term, it has a good opportunity to regain share in the U.S. and grow internationally.
T-6. Hanesbrands Inc. (NYSE:HBI)
Number of Hedge Fund Shareholders: 25
Ownership of Hanesbrands Inc. (NYSE:HBI) among the select group of funds tracked by Insider Monkey sank to a nine-year low during the second quarter, but rebounded big time during Q3, shooting up by nearly 50%. Ken Griffin’s Citadel Investment Group and Andrew Kurita’s Kettle Hill Capital Management were two of the funds to add HBI to their 13F portfolios during Q3.
Hanesbrands Inc. (NYSE:HBI) shares have trended down throughout the year, losing 63% of their value, which may have prompted some funds to go bargain hunting. The clothing and undergarments manufacturer has been facing several challenges in recent quarters, including tighter inventory management among retailers and rising costs. Sales slumped by 7% year-over-year in Q3, sliding to $1.67 billion, while adjusted net income fared far worse, tumbling by 46% to $102 million. The company’s guidance for the holiday season also came in well below estimates, with projections for as little as $1.4 billion in sales and $0.04 in adjusted EPS compared to $1.63 billion and $0.21 estimates respectively.
Chartwell Investment Partners shared some of the challenges that Hanesbrands Inc. (NYSE:HBI) has faced of late in the fund’s Q2 2022 investor letter:
“The three worst-performing stocks in the Dividend Equity accounts includes Hanesbrands (NYSE:HBI, 1.1%), down 30.1%. Hanesbrands’ management is executing well, but the challenging environment includes supply-chain headwinds, higher input costs and some post-Covid inventory build-up.”
T-6. The Gap, Inc. (NYSE:GPS)
Number of Hedge Fund Shareholders: 25
Hedge funds were adding The Gap, Inc. (NYSE:GPS) to their portfolio in the first year of the pandemic, but many unloaded the stock during the third quarter of 2021. Richard S. Pzena’s Pzena Investment Management owns the largest GPS position among the funds tracked by our database, while Ken Fisher’s Fisher Asset Management built a large stake in the company during Q3.
The Gap, Inc. (NYSE:GPS) was another fashion stock trading at bargain bin prices heading into Q4, but the stock has enjoyed a nice resurgence this quarter, gaining 76%. As noted above, high-end products tend to perform better than their counterparts during economic slowdowns, and that’s been evident at The Gap. A strong performance from the company’s Banana Republic brand, which grew comparable sales by 10% during Q3, was driven in part by the brand’s wider range of premium items.
The Gap, Inc. (NYSE:GPS)’s core brand also swung to 4% comparable sales growth after two quarters of double digit declines. All told, The Gap grew sales by 2% to $4.04 billion during Q3, which beat estimates. It was also far more profitable than analysts expected, pulling in $0.71 per share on an adjusted basis against expectations of neutral earnings.
One of Lululemon Athletica Inc. (NASDAQ:LULU), Abercrombie & Fitch Co. (NYSE:ANF), and NIKE, Inc. (NYSE:NKE) is the top fashion stock to buy. See which one earns that title by clicking the link below.
5. Abercrombie & Fitch Co. (NYSE:ANF)
Number of Hedge Fund Shareholders: 26
Abercrombie & Fitch Co. (NYSE:ANF) shares have slumped by 37% over the last year, and though there’s been a slight decline in smart money ownership of ANF during that time, funds are largely sticking with the stock though this lean period. David Paradice’s Paradice Investment Management has been a shareholder of ANF for more than a year, while Steve Cohen’s Point72 Asset Management sold out of its stake during Q4 of 2021 but added it back to its portfolio in Q2 of this year.
Abercrombie & Fitch Co. (NYSE:ANF) shares have posted 27% gains since November 21 following the release of the company’s Q3 results. While year-over-year comps were understandably not great, the company did beat expectations by pulling in $880 million in revenue and earning $0.01 per share on an adjusted basis. Analysts on the other hand were expecting the company to lose money during the quarter.
Abercrombie & Fitch Co. (NYSE:ANF)’s namesake brand continued to perform this well, posting 10% year-over-year sales growth, following 13% and 5% gains in the first two quarters of the year respectively. The company’s Hollister brand is struggling however, incurring double digit sales declines in the each of the last two quarters. Abercrombie is trading at just 11.7x forward earnings, which looks cheap, and could explain why hedge funds have been hanging onto the stock.
4. Tapestry, Inc. (NYSE:TPR)
Number of Hedge Fund Shareholders: 40
Hedge fund ownership of Tapestry, Inc. (NYSE:TPR) crested to an all-time high in the first quarter of 2021 but has fallen by 26% since then. Many of the stock’s biggest shareholders remain bullish on the company however, including Arrowstreet Capital, which increased the size of its TPR position by 587% during Q3 to 3.67 million shares.
High-end retailer Tapestry, Inc. (NYSE:TPR), which owns the popular brands Kate Spade, Coach, and Stuart Weitzman, grew sales by 2% in the first quarter of its fiscal 2023, hitting $1.5 billion. Tapestry’s net income fell by over $30 million year-over-year to $195 million due to rising costs, but its $0.79 in earnings per share were down by just $0.01 from a year earlier thanks to the company buying back over 13% of its outstanding shares over the prior year.
Despite the relatively solid quarter given the economic backdrop, Tapestry, Inc. (NYSE:TPR) cut its full fiscal year guidance by about $350 million on the top line, and by approximately $0.20 on the bottom line. The company is hopeful that outperformance will Asia and Europe will help offset some of the expected weakness in North America and China, which are its two largest market.
3. Capri Holdings Limited (NYSE:CPRI)
Number of Hedge Fund Shareholders: 44
Hedge fund ownership of Capri Holdings Limited (NYSE:CPRI) has remained relatively stable over the last five years, save for a steep decline during the first half of 2020 that was quickly negated. David Einhorn’s Greenlight Capital, which has been preparing its portfolio for a possible recession, has been buying shares of CPRI throughout much of the past four quarters, increasing the size of its stake from 606,000 to 988,500 shares during that time.
Capri Holdings Limited (NYSE:CPRI) looks like a rather compelling value stock, which likely explains the stability of hedge fund ownership. Its shares currently trade at just 7.9x forward earnings and 1.44x sales. Its shares have been trending up over the past few weeks after the company topped sales estimates with its fiscal Q2 results, though it also trimmed about $100 million off its full fiscal year projections.
Capri Holdings Limited (NYSE:CPRI), which manages the luxury brands Michael Kors, Versace, and Jimmy Choo, has enjoyed surprising strength in Europe, but expects consumer weakness to prevail in 2023, which likely explains its reduced guidance. The company’s Chairman and CEO John Idol anticipates European consumer sentiment weakening considerably and is also concerned about how North American consumers will be positioned by the second half of next year.
2. Lululemon Athletica Inc. (NASDAQ:LULU)
Number of Hedge Fund Shareholders: 57
Hedge funds are going gaga over LULU. Lululemon Athletica Inc. (NASDAQ:LULU) was held in a record number of 13F portfolios during Q3 after a 30% increase in the smart money’s ownership of the stock over the past two quarters. Noam Gottesman’s GLG Partners and Steven Boyd’s Armistice Capital are among the many funds to have added LULU to their holdings this year.
Lululemon Athletica Inc. (NASDAQ:LULU) started out primarily as a seller of yoga apparel for women, but has rapidly expanded into men’s apparel and the broader athleasure apparel category in recent years. The company is continuing to push harder into men’s apparel, grow its digital business, and drive international (which currently accounts for just 17% of sales) expansion, which it believes will allow it to achieve a 15% CAGR through its 2026 fiscal year.
Lululemon Athletica Inc. (NASDAQ:LULU)’s sales soared by 29% during its fiscal quarter ended July 31, with a stellar 23% increase in comparable sales. And while most other fashion retailers have seen margins and profits slump this year, Lululemon’s earnings per share surged to $2.26 in its latest reported quarter, up $0.67 from a year earlier. It also grew its gross and operating margins, with the former hitting 56.5%.
1. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Shareholders: 70
Topping the list best fashion stocks to buy now is NIKE, Inc. (NYSE:NKE), ownership of which is flat over the last year among hedge funds even as shares have tumbled from their all-time highs. Terry Smith’s Fundsmith LLP and Ken Fisher’s Fisher Asset Management remain the two largest shareholders of NKE among the funds tracked by our database, as they were a year ago.
NIKE, Inc. (NYSE:NKE) doesn’t have anywhere near the sales growth or operational efficiency that Lululemon currently does, but there’s a lot to like about the stock nonetheless. For one, it has a decent and growing dividend that yields 1.26%. Given Nike’s low payout ratio and expected future earnings growth, there should be nothing stopping the dividend from continuing to grow annually for the foreseeable future. And while Nike’s sales grew by just 4% in Q3, they were up 10% on a constant currency basis, which is rather impressive.
The RiverPark Funds’ Large Growth Fund believes NIKE, Inc. (NYSE:NKE) will continue to exhibit strong top-line growth into the future, as it discussed in its Q3 2022 investor letter:
“Nike: NKE shares were a top detractor this quarter on higher inventory balances leading to lower-than-expected gross margins for the next couple of quarters. The company reported 1Q23 sales and EPS beats, but freight costs, markdowns, and the strong dollar weighed on gross margins. Nike continues to expect low double-digit currency-neutral sales growth, but the strong dollar will reduce overall sales growth and discounted inventory will further reduce gross margins for the year.
Nike is, by far, the leading athletic footwear, apparel, and equipment company in the world with over $46 billion in revenue, $6 billion in 2021 annual free cash flow, and over $4 billion of excess cash. After working through its near-term currency and gross margin issues, we expect the company to return towards management’s guidance of at least 10% annual revenue growth, and return to its accelerating profit growth, as longer-term we expect margins to be materially aided by rising average sales prices (from both increased pricing and a mix shift to more premium products), the company’s deep innovation pipeline, a secular shift from the company’s traditional wholesale channels to a more direct-to-consumer approach (now 35% of revenues up from 16% ten years ago), and a more streamlined supply chain. We believe that the continued global secular growth trend towards active wear will continue to aid Nike’s top-line growth, while we expect the combined gross and operating margin improvements from its initiatives will drive long-term mid-teens or higher annual EPS growth for the foreseeable future.”
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Disclosure: None. 11 Best Fashion Stocks To Buy Now is originally published at Insider Monkey.
