After a terrible year registered by fashion stocks in 2015, few people would have thought that they will be performing so well in 2016 and that too amid a slightly negative momentum witnessed by the broader market. The stocks of several luxury retailers are trading with high double-digit gains currently and it almost seems that they are in a rush to recoup the losses from the past few quarters. With positive momentum on their side, we at Insider Monkey thought it might be the right time to come up with a list of fashion stocks that investors should buy at current levels. To compile the list we ranked the stocks of luxury retailers based on what the smart money thought of them going into 2016. In this post, we will take a closer look at five fashion stocks that the funds from our database are the most bullish on.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Michael Kors Holdings Ltd (NYSE:KORS)
– Investors with Long Positions (as of December 31): 27
– Aggregate Value of Investors’ Holdings (as of December 31): $752.5 million
Let’s begin with Michael Kors Holdings Ltd (NYSE:KORS), which saw its popularity among the funds we track decline as the number of funds with long positions decreased by three and the aggregate value of their holdings fell by $220 million during the fourth quarter. Ray Carroll‘s Breton Hill Capital sold its entire stake in the company during the fourth quarter and might be regretting the decision, since shares of Michael Kors Holdings Ltd (NYSE:KORS) are currently trading up by 38% year-to-date. Most of those gains came after the company reported much better than expected fourth quarter results in early-February and revealed that it would focus on reducing its CAPEX going forward. In spite of the gains that it has had this year, most analysts feel that shares of the company are still cheap, trading at a trailing P/E of 12.17. Another reason for analysts’ optimism on the stock is the exceptional growth the company has displayed in the Asian market.
#4 Ralph Lauren Corp (NYSE:RL)
– Investors with Long Positions (as of December 31): 29
– Aggregate Value of Investors’ Holdings (as of December 31): $467.45 million
Ralph Lauren Corp (NYSE:RL) is the only stock on this list, which is trading in the red so far this year. The number of investors covered by us with long positions in the stock declined by four and the aggregate value of their holdings in the company slumped by one-third during the fourth quarter. However, maverick trader Steve Cohen‘s Point 72 Asset Management more than doubled its stake in the company to 836,021 shares during the same period. The dismal fourth quarter numbers and earnings guidance that the company reported last month caused its stock to slump hard and it now trades down by over 15% for 2016. According to recent reports, after the disappointing fourth quarter results the company is currently focused on restructuring its business by moving its warehousing and inventory management services to a new location in order to shorten its lead time. Moreover, it is also developing a new e-commerce platform, which it intends to launch in 2017. On February 25, the company announced that the president of its Global Brands, Christopher Peterson, will leave the company on May 31.
#3 Carter’s, Inc. (NYSE:CRI)
– Investors with Long Positions (as of December 31): 35
– Aggregate Value of Investors’ Holdings (as of December 31): $1.06 billion
Though Carter’s, Inc. (NYSE:CRI)’s stock started drifting lower in the second-half of 2015, it still counts as one of the best performing apparel stock in the past five years with gains of 262% during that period. Interestingly, during the fourth quarter of 2015, the ownership of the company among funds tracked by us declined by 11, but the aggregate value of their holdings in it remained nearly constant. Robert Pohly‘s Samlyn Capital was among the hedge funds which initiated a stake in Carter’s, Inc. (NYSE:CRI) during the fourth quarter, it held 759,848 shares of the company at the end of December. Owing to the earnings and revenue beat the company delivered for the fourth quarter, its stock is currently trading up 12% year-to-date. While the Street was expecting the company to report EPS of $1.29 on revenue of $858.60 million, it declared EPS of $1.40 on revenue of $867 million. Along with its earnings, the company also announced a $500 million share repurchase program and hiked its quarterly dividend by 50% to $0.33 per share, which analysts see as a positive move that will safeguard the stock from any sharp corrections.
#2 Kate Spade & Co (NYSE:KATE)
– Investors with Long Positions (as of December 31): 36
– Aggregate Value of Investors’ Holdings (as of December 31): $463 million
Moving on, the number of funds bullish on Kate Spade & Co (NYSE:KATE) increased by eight during the fourth quarter, however, the aggregate value of their positions declined by $663 million. With ownership of over 5.6 million shares of the company, Samlyn Capital was the largest shareholder at the end of December among funds covered by us. Shares of Kate Spade & Co (NYSE:KATE) started gaining ground in mid-February in anticipation of the company’s fourth quarter results and continued their upward trajectory after it guided strong full year fiscal 2016 comps on March 1. Owing largely to this rally, they are currently trading up 37.8% year-to-date. For its fourth quarter, the company reported EPS of $0.32 on revenue of $428 million, compared to the EPS of $0.24 on revenue of $399 million that it had reported for the same quarter of the previous financial year. Analysts who track the stock currently feel that after the recent run up it is fully valued now, however, they caution investors from shorting the stock, despite its very high debt-to-equity multiple of 231.59. On March 16, analysts at Wells Fargo reiterated their ‘Market Perform’ rating on the stock.
#1 Coach Inc (NYSE:COH)
– Investors with Long Positions (as of December 31): 37
– Aggregate Value of Investors’ Holdings (as of December 31): $737.55 million
With its ownership having grown by 10 and the aggregate value of long positions in the company having surged by 72% during the fourth quarter, Coach Inc (NYSE:COH) emerged as the most popular fashion stock among the funds we track heading into 2016. The stock has lived up to the faith that these investors displayed in it by rising over 18% this year. Dmitry Balyasny‘s Balyasny Asset Management, which initiated a stake in the company during the fourth quarter by purchasing 3.0 million shares, was the second-largest shareholder of Coach Inc (NYSE:COH) at the end of December among investors covered by us. The company is expected to report its fiscal 2016 third quarter results next month and analysts project EPS of $0.41 on revenue of $1.02 billion, considerably higher than the EPS of $0.36 on revenue of $929 million it delivered for the same quarter of the previous year. The 37 prominent analysts and research houses on Wall Street that cover the stock currently have an average rating of ‘Overweight’ with an average price target of $39.03, close to the current price of the stock.