We recently published a list of the 12 Best Apparel Stocks to Invest In. In this article, we are going to take a look at where The Gap, Inc. (NYSE:GAP) stands against the other best apparel stocks to invest in.

Consumer Spending and Weather: What’s the Connection?

On February 25, Matt Boss, JPMorgan retail analyst, appeared on CNBC’s ‘Closing Bell’ to discuss the retail trade. He said the market has seen the worst start to spring in around 30 years. From a weather perspective, there have been significant store closures as every part of the country, excluding the southwest, has been clobbered by unseasonable weather.

On top of it, the country has seen 30% more snow, which has pressured seasonal sales. The unseasonable climate has thus created an unfavorable environment. States in the southwest, including California, which have had normal weather, have undergone a 0% change in consumer spending. In fact, consumer spending in states like California, Nevada, and Arizona was up 5%, exactly the same as the rate in November and December.

READ ALSO: 10 Best Vegan Stocks to Buy According to Analysts and 10 Best Discount Store Stocks to Invest In.

The Condition of the American Market and Consumer

Further talking about the conditions of the market and consumers, Boss was of the opinion that a selective recession is materializing. The real force driving consumer spending is the 50% of the economy driven by higher-income consumers. He said that $60 trillion in wealth creation since 2019 is the number to be noticed here. At the low end, the consumer continues to be pressured. However, in retail, this trend means that those offering value continue to win, which is usually the case for retailers catering to value and convenience simultaneously. He said that retailers offering products that are better than a year ago and not compromising on value at the same time make up the equation on the basis of which the market is seeing real winners and losers. He also believed that consumer resilience presents a buying opportunity in the retail sector weakness.

On March 3, Chris Horvers, JPMorgan head of broadlines/hardlines retail, joined CNBC’s ‘The Exchange’ to discuss the retail trade and the weakening consumer. He said that over the past three years, the market has consumers seeking the cheapest prices, particularly in the food market, which is proving to be a tailwind for discount retailers. Thus, he thinks it would be difficult to pass along tariffs, especially in the discretionary categories. The retailers would have to eat a little bit, and so would the manufacturers. However, there is also likely to be an elasticity impact.

We discussed the potential impact of Trump’s tariffs on retail stocks in a recently published article on 12 Cheap Retail Stocks to Buy According to Hedge Funds. Here is an excerpt from the article:

“The Trump administration proposed 25% tariffs on goods imported from Canada and Mexico and 10% tariffs on Chinese-imported goods. Analysts believe these tariffs will affect retail stocks and the goods manufactured in the tariffed countries, at least theoretically. While tariffs on Mexico and Canada have been delayed, they have kicked in for China, according to Yahoo! Finance. This has led to several retailers moving sourcing out of China to contain costs.

Simeon Siegel, retail analyst at BMO Capital Markets, appeared in an episode of Yahoo! Finance’s Opening Bid podcast. Talking about the potential effect of Trump’s tariffs on retail stocks, he was of the opinion that we are focusing on tariffs more than is required. Taking a purely business perspective, he reasoned that a tariff is nothing more than a cost input going up, quite like how the cost of cotton, shipping, or labor can rise.

When such cases materialize, companies take steps to deal with the rising costs, but they don’t become all-encompassed by them. Siegel posited that the uncertainty surrounding this scenario is dramatically more concerning than the actual severity. Approaching the situation as an analyst, he said that he is focusing on companies with the pricing power and capability to deal with rising costs, regardless of why the costs are increasing. Healthy brands with healthy businesses are thus the way to approach this conversation.”

Our Methodology

We sifted through stock screeners, online rankings, and ETFs to compile a list of 20 apparel stocks. We then selected the top 12 most popular stocks among elite hedge funds as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.

Why are we interested in 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

The Gap, Inc. (NYSE:GAP)

Number of Hedge Fund Holders: 39

The Gap, Inc. (NYSE:GAP) is a specialty retailer in the US that offers apparel, accessories, and personal care products for women, men, and children. Its brand portfolio includes Old Navy, Gap, Banana Republic, and Athleta brands.

The company gained market share for the eighth consecutive quarter in fiscal Q4 2024, reflecting the increasing popularity of its brands among consumers. It attained one of the highest gross margins in the last 20 years, increasing its operating income by more than $500 million and operating margin by 330 basis points versus last year’s adjusted rate. In addition, The Gap, Inc. (NYSE:GAP) delivered a full-year EPS of $2.20, the highest since 2018, demonstrating its earnings power.

On January 27, The Gap, Inc. (NYSE:GAP) announced an expanded partnership with Sean Wotherspoon, its global vintage curator, to release GapVintage and bring the company’s iconic product archive directly to customers across the globe. The company will include seasonal and themed drops, taking control of its vintage products as the secondhand market continues to grow and resonate among younger generations.

Overall, GAP ranks 10th on our list of the best apparel stocks to invest in. While we acknowledge the potential of GAP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GAP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.