We recently published a list of 10 Best Clothing Stocks To Invest In Now. In this article, we are going to take a look at where Abercrombie & Fitch Co. (NYSE:ANF) stands against the other best clothing stocks to invest in now.
Trump’s Proposed Tariffs: How Will They Affect Retailers?
While the inflation figures have come down a little, they are still sticky. More consumers, even at higher income levels, are gravitating towards discounters. The reason is simple: prices are still higher than what they used to be. On November 26, Dana Telsey of Telsey Advisory Group appeared on CNBC to discuss the potential implications of Trump’s proposed tariffs on consumer prices and margin challenges for retailers.
She said that if the tariffs do come to fruition, the apparel industry will certainly be impacted. It is estimated that up to $80 billion in consumer spending could be impacted, which would require a double-digit increase in prices for some of the apparel goods.
Trends in the Holiday Shopping Season
Retail stocks are taking center stage with holiday shopping kicking off. However, the consumer spending front presents a dichotomy. While one side shows healthy consumer spending, the other side presents stretched credit and consumer spending patterns showing an increasing inclination for discounts.
On November 28, John San Marco, Neuberger Berman portfolio manager, joined CNBC’s ‘Closing Bell Overtime’ to discuss the recent trends in the retail sector. Listing how this season is different from the past few years, he said that real wages have been positive for a while now, with significant cohorts of consumers holding balance sheets in pretty good shape, particularly homeowners. There hasn’t been a discretionary comeback yet. Without any significant market disruption, he believes the season will see the consumer behave in a healthier fashion moving forward.
A significant consideration in the current holiday shopping season is whether retail investors should be concerned about a dynamic where some retailers bring inventory into the US ahead of the tariffs. Since this holiday season is expected to be relatively shorter, the retailers might have to discount their inventory to avoid having their warehouses too full.
Marco said that tactically figuring out the inventory inflow is complicated, made much more challenging by the volatility surrounding the election and the weather conditions. Some retailers may be able to capitalize on the situation’s unpredictability and buy stuff opportunistically. However, Marco is of the opinion that a premium on high-quality retailers that offer an unbeatable consumer value proposition is paramount.
Should Investors be Feeling Bullish About the Holiday Shopping Season?
On November 28, ‘Fast Money’ traders appeared on CNBC to discuss what to expect from retailers with the holiday season kicking off. Viewing the American retail sector through the lens of stocks soaring at all-time highs, the 2024 holiday season looks pretty positive.
However, there is another side to that coin as well, as some stocks are sinking to lows. Credit card debt is approaching $1.2 trillion, and delinquency rates are at a 13-year high. The situation thus presents a bifurcated retail environment. Despite this bleak side of the coin, people are feeling great about things at the present.
With a number of major events now in the past, people believe they are getting closure. The overall environment is simmering down, which is a tailwind for confidence in the analysts’ opinion. Agreeing with these points, Karen Finerman, Co-founder and CEO of Metropolitan Capital, said that markets and people both hate uncertainty. She believes that the market has risen a lot, and several other positive factors are making people feel better. Most retailers are positioned well on an inventory standpoint and can get good margins. She is thus comfortable with the current retail setup.
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.
Our Methodology
For this article, we used the Finviz stock screener to identify around 15 clothing stocks and narrowed our list to 10 stocks with the most positive analyst upside from current levels. We also added the number of hedge fund holders for each stock, as of Q3 2024. The stocks are arranged in ascending order of their upside potential as of November 29, 2024.
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).
Abercrombie & Fitch Co. (NYSE:ANF)
Analyst Upside: 27.89%
Number of Hedge Fund Holders: 51
Abercrombie & Fitch Co. is a global omnichannel retailer that offers an assortment of apparel, personal care products, and accessories for women, men, and kids. Its brand portfolio includes Abercrombie brands, which includes Abercrombie & Fitch and abercrombie kids, and Hollister brands, including Hollister and Gilly Hicks.
The company delivered net sales of $1.2 billion in fiscal Q3 2024, up 14% over fiscal Q3 2023. It also delivered strong comparable sales of 16%. This growth was attributed to the company’s strong playbook, which is delivering value for both new and existing customers. Abercrombie & Fitch is seeing an increasing number of customers responding to its product voice and experience, boosting sales.
The company’s solid brand health was reflected across all its regions, with the EMEA, Americas, and APAC all growing double digits in fiscal Q3 2024. The Americas grew by 14%, delivering the sixth consecutive quarter of double-digital sales growth in the region. APAC and EMEA grew by 32% and 15%, respectively.
The Abercrombie brands grew by 15% in fiscal Q3 2024 on top of the 30% growth in fiscal Q3 2023, attaining a third-quarter record for brand net sales. Jeans, dresses, sweaters, and fleece were the primary categories behind this growth, with category balance continuing across genders for the company.
Abercrombie & Fitch is focusing on its store expansion strategy to continue this positive momentum. It is planning to open around 40 new stores for Abercrombie brands in 2024, allowing customers convenience in the shopping season.
Carillon Eagle Small Cap Growth Fund stated the following regarding Abercrombie & Fitch Co. (NYSE:ANF) in its Q3 2024 investor letter:
“Abercrombie & Fitch Co. (NYSE:ANF) is a global multi-brand omnichannel specialty retailer of apparel, personal care products, and accessories for men, women, and kids. The stock lagged during the period despite reporting strong quarterly results and lifting forward guidance. We believe the performance is more a result of elevated investor expectations than any weakening of the underlying fundamentals, which we believe continue to remain strong.”
Overall, ANF ranks 4th on our list of best clothing stocks to invest in now. While we acknowledge the potential of clothing stocks, 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 ANF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
