We recently compiled a list of the 10 Best Clothing Stocks To Buy Now. In this article, we are going to take a look at where Abercrombie & Fitch Co. (NYSE:ANF) stands against the other clothing stocks.
Trends in the Clothing Sector
The internet has changed the way people shop for clothes. Social media platforms and influencers have popularized the “haul culture,” where people order a big box of low-priced clothes online and sift through them. Also colloquially known as the “Shein effect,” people are turning towards fast fashion, ordering clothing that offers an element of surprise upon receiving. Although Shein’s primary suppliers are in China, its customers are majorly US-based. Its global sales reached around $30 billion last year, almost touching the $39 billion in global sales made by Inditex, the old-school fast fashion leader and owner of Zara.
Fashion and apparel rank among some of the most significant industries in the world, creating key value for global economy. According to McKinsey, it would rank as the seventh largest economy in the world if placed alongside the GDPs of individual countries. The industry, however, faced several challenges in 2023, with the United States and Europe experiencing slow regional growth throughout the year. While China started the year with a strong performance, it gradually waned, slowing down in the second half. Even the luxury segment experienced uneven performance and slower sales. The fashion industry in 2024 can thus be described with one word: uncertainty. Weaker economic growth, dwindling consumer confidence, and rising inflation are making it hard for companies to devise suitable performance drivers. A report by Reuters showed that consumers are becoming increasingly picky about the clothes they buy, and are shopping around more. This has resulted in a “patchwork of winners and losers.”
Fashion forecasts by McKinsey show that the industry is expected to grow by 2-4% in 2024, with growth variations across countries and regions. The luxury segment is anticipated to generate the largest economic profit, but that does not mean companies in this sector won’t experience tough economic environments. Global growth forecast for the industry is lower in 2024 compared to 2023, going from 5%-7% in 2023 to 3%-5% as post-pandemic shopping sprees halt. Growth in China and Europe is expected to slow, but the US market shows a completely different outlook. North America’s growth is expected to pace in 2024 after a sluggish 2023, reflecting the region’s more optimistic outlook.
In addition, the current political unrest in Bangladesh is expected to affect the global clothing industry, disrupting the functioning of global apparel retailers ranging from H&M to Zara. With these clothing giants heading into key holiday season, the disruptions might incur heavy losses to US retailers and Bangladesh itself, which is the third largest exporter of clothing in the world as of 2023. Overall, consumer spending patterns have slowed down in the US, with people making do with what’s in their closets before the season changes. The Federal Reserve is also expected to cut interest rates in September. A report by Reuters showed that investors previously bet that the Fed would slash rates by half a percentage point, and are now estimating an approximately 75% probability of a quarter-percentage-point cut in its September meeting. This is expected to drive consumer confidence and ease spending patterns. With that, let’s look at the 10 best clothing stocks to buy.
Our Methodology
For this article, we used the Finviz stock screener to identify over 20 clothing stocks then narrowed our list to 10 stocks with the most positive upside from current levels, and listed the stocks in ascending order of upside potential, as of August 19. We only chose stocks that had a market cap of over 2 billion.
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).
A close-up of a customer trying on a piece of apparel in the retailer’s spacious dressing room, emphasizing the company’s focus on personal care and experience.
Abercrombie & Fitch Co. (NYSE:ANF)
Upside from Current Levels: 9.33%
Abercrombie & Fitch (NYSE:ANF) had a fall from grace after its 90’s heyday, with the 2022 Netflix documentary “White Hot: The Rise and Fall of Abercrombie & Fitch” showing marketing and fashion missteps by the company. But the fall was temporary, as the international near-luxury lifestyle brand has made a comeback into the lives of GenZ and Gen Alpha. This turnaround was prompted by a trend-driven collection and trendy promotional strategies, bringing out lighter and looser clothing items well suited for everything: from gym to casual hangouts.
In 2019, Abercrombie & Fitch (NYSE:ANF) reinvented its entire marketing and product design to move away from tight-fitted t-shirts and perfume-filled mall stores. It used to be a predominantly teen brand in the 90s, quite infamous for its shirtless models. But then came the shift with new management: the brand has now revamped its strategy, focusing on inclusion and offering work-appropriate wear, wedding wear, and even baggy jeans in all shapes and sizes.
With its revamped portfolio of less revealing and logo-less apparel, Abercrombie & Fitch (NYSE:ANF) holds a competitive advantage. It is now appealing to millennials and GenZ, going beyond its previously restricted target market and becoming profitable. It reported a 22% year-over-year growth in revenue, which amounted to $1 billion during the February-April quarter, a record for the company. The growth rippled across the globe, with revenue increasing by 23% in the Americas and 19% in Europe, with the highest popularity in Germany and the UK. The company’s CEO anticipated slower growth in the US after the 2023 revival, but also claimed that the company was excelling in the overall market and held a substantial opportunity for international growth, especially in countries like the UK.
Here’s what Chartwell Investment Partners, LLC said about Abercrombie & Fitch Co. (NYSE:ANF) in its third-quarter 2023 investor letter:
“Within the Carillon Chartwell Small Cap Growth Fund, information technology and industrials were the strongest-performing sectors, with strong stock selection leading to alpha generation. Abercrombie & Fitch Co. (NYSE:ANF) reported very strong earnings driven by significant margin improvement that resulted from much lower shipping and freight costs compared to last year.”
Is Abercrombie & Fitch (NYSE:ANF) cheap? The stock is currently trading at a P/E ratio of 16.37 at a 5.13% premium to its sector. So while we cannot call the company cheap, it has potential for growth. The future looks promising for the company: analysts estimate a 51% year-over-year increase in its earnings by 2025. Its median price target of $155.25 indicates an upside of 9.33% from current levels. 48 hedge funds hold Abercrombie & Fitch (NYSE:ANF) as of Q2 2024.
Overall ANF ranks 10th on our list of the best clothing stocks to buy. While we acknowledge the potential of ANF 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 timeframe. If you are looking for an AI stock that is more promising than ANF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.
