13 Best Clothing Stocks to Buy Now
In this article, we discuss the 13 best clothing stocks to buy now. If you want to skip our detailed analysis of these stocks, go directly to 5 Best Clothing Stocks to Buy Now.
The global clothing industry has had to battle many challenges in 2023. These include high inflation, greater scrutiny over manufacturing processes, the increased budgets on digital marketing, as well as shifting consumer patterns. Even though the post-pandemic bounce for the clothing world lasted for well over a year starting 2021, hyper inflation forced consumer spending to slow down dramatically thereafter. As inflation numbers stabilize and spending resumes, the clothing industry looks set for another comeback.
Some of the top stocks to monitor in this context include The TJX Companies, Inc. (NYSE:TJX), Lululemon Athletica Inc. (NASDAQ:LULU), and NIKE, Inc. (NYSE:NKE). According to a report by consulting firm McKinsey, in 2021, the fashion industry, a subset of the clothing sector, delivered a 21% increase in revenues in 2021, and earnings before taxes more than doubled from around 6% to over 12%. One of the prime reasons behind these numbers were luxury brands that outperformed the broader industry.
Investors eager to pour their money into apparel firms should keep in mind certain industry trends that are likely to shape the clothing market in 2024. These include increased emphasis on sustainable apparel, the desire for customization and personalization, and the increase in demand for clothes as the holiday season approaches, hitting supply channels. The use of the metaverse and artificial intelligence is also an exciting development in the clothing world. Rest assured, the clothing market is set to deliver impressive growth numbers in the coming months.
One measure of the success of clothing firms in the past few years is the extraordinary performance of retail ETFs. In the past five years, the SPDR S&P Retail ETF has returned more than 43% to investors. It is up by close to 6% year-to-date. Similarly, the Global X Health and Wellness ETF has returned close to 20% to investors in the past five years. It is up nearly 4% year-to-date. A major factor in this stellar performance has been the shift from brick-and-mortar to online stores. The coronavirus pandemic accelerated this shift.
According to a report by market research firm eMarketer, global retail ecommerce sales are expected to surpass $6 trillion this year, accounting for more than a fifth of overall retail sales. Within two more years, this number will jump above $7 trillion, despite slowing growth. Companies like Amazon, which generates a huge chunk of revenue from online sales already, is already preparing for this by shutting down brick-and-mortar apparel stores that were only launched last year.
Another interesting trend that apparel investors should take note of is the expansion of the secondhand apparel industry. The global secondhand apparel market is likely to expand three times faster than the global apparel market in the next five years. By 2026, the secondhand apparel market will cross $218 billion in valuation, up from $141 billion in 2023. Online marketplaces are driving this growth. Research by online consignment store ThredUp reveals that 70% of consumers believe that it is now easier to shop for secondhand clothes online than it was five years ago.
The perspective of apparel CEOs should also be taken into account before making decisions about investments in the clothing industry. After all, running a business is never easy. Richard Hayne, the CEO of popular apparel brand Urban Outfitters, Inc. (NASDAQ:URBN), recently said during an earnings call that the apparel world was witnessing a watershed moment, much like the start of ecommerce at the turn of the century and of mobile commerce the following decade. Hayne said machine learning technology had the potential to transform retail.
"Current advances in machine learning technology hold the promise to transform the business of retail once again. Data science and artificial intelligence have the potential to deliver much shorter product lead times, more accurate demand forecasts, better allocations, more personalized marketing, and optimized inventory planning, among many other benefits. These technologies should improve efficiency, reduce waste, and provide cost savings across a wide range of functions. Our brand teams and I are especially excited by the potential for generative AI to augment and enhance our already superb creative capabilities. We expect to give you an annual update and appraisal of our progress in realizing the benefits of these amazing new tools."
James R. Martin/Shutterstock.com
Our Methodology
For this article, we selected clothing stocks and ranked them using upside potential based on the price targets assigned to them by different analysts. A database of around 900 elite hedge funds tracked by Insider Monkey in the second quarter of 2023 was used to quantify the popularity of each stock in the hedge fund universe.
Best Clothing Stocks to Buy Now
13. Farfetch Limited (NYSE:FTCH)
Number of Hedge Fund Holders: 42
Farfetch Limited (NYSE:FTCH) is a UK-based firm that owns and runs an online marketplace for luxury fashion goods. On November 11, investment advisory Wells Fargo maintained an Overweight rating on Farfetch Limited (NYSE:FTCH) stock and lowered the price target to $13 from $18, identifying greater near term execution risk and weaker fundamentals as the primary reasons behind the price target update.
At the end of the second quarter of 2023, 42 hedge funds in the database of Insider Monkey held stakes worth $420 million in Farfetch Limited (NYSE:FTCH), compared to 39 in the previous quarter worth $311 million.
Just like The TJX Companies, Inc. (NYSE:TJX), Lululemon Athletica Inc. (NASDAQ:LULU), and NIKE, Inc. (NYSE:NKE), Farfetch Limited (NYSE:FTCH) is one of the best clothing stocks to buy right now.
In its Q3 2023 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Farfetch Limited (NYSE:FTCH) was one of them. Here is what the fund said:
“Farfetch is a leading digital software and services provider and online marketplace for global luxury brands. While we believe in the company’s long-term potential, profitability has trended in the wrong direction, and a turnaround is taking longer than expected. While Farfetch may still prove successful over time, and the stock is arguably inexpensive, we can no longer count on management’s execution, and we believe there are better risk-adjusted return opportunities in higher quality businesses.”
12. American Eagle Outfitters, Inc. (NYSE:AEO)
Number of Hedge Fund Holders: 24
American Eagle Outfitters, Inc. (NYSE:AEO) operates as a specialty retailer that provides clothing, accessories, and personal care products. On November 15, Citi analyst Paul Lejuez maintained a Neutral rating on American Eagle Outfitters, Inc. (NYSE:AEO) stock and raised the price target to $19 from $18, noting that new silhouettes and fashion in non-denim and denim pants drove an improvement in American Eagle comps in the third quarter.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Candlestick Capital Management is a leading shareholder in American Eagle Outfitters, Inc. (NYSE:AEO) with 4.8 million shares worth more than $80 million.
11. V.F. Corporation (NYSE:VFC)
Number of Hedge Fund Holders: 26
V.F. Corporation (NYSE:VFC) engages in the design, procurement, marketing, and distribution of branded lifestyle apparel, footwear, and related products for men, women, and children. On November 15, investment advisory JPMorgan upgraded V.F. Corporation (NYSE:VFC) stock to Underweight from Neutral and raised the price target to $19 from $15.
At the end of the second quarter of 2023, 26 hedge funds in the database of Insider Monkey held stakes worth $426 million in V.F. Corporation (NYSE:VFC), compared to 28 in the previous quarter worth $532 million.
10. Victoria's Secret & Co. (NYSE:VSCO)
Number of Hedge Fund Holders: 25
Victoria's Secret & Co. (NYSE:VSCO) is a specialty retailer of personal care, intimate, and beauty products. On November 6, investment advisory Evercore ISI resumed coverage of Victoria's Secret & Co. (NYSE:VSCO) stock with an In Line rating and a price target of $20, lauding the potential margin and earnings unlock.
At the end of the second quarter of 2023, 25 hedge funds in the database of Insider Monkey held stakes worth $228 million in Victoria's Secret & Co. (NYSE:VSCO), compared to 27 in the previous quarter worth $562 million.
9. Kohl's Corporation (NYSE:KSS)
Number of Hedge Fund Holders: 23
Kohl's Corporation (NYSE:KSS) is a retail company based in Wisconsin. On November 14, investment advisory Citi maintained a Neutral rating on Kohl's Corporation (NYSE:KSS) stock and lowered the price target to $20 from $26, predicting a sales miss but an earnings beat for the firm in the third quarter.
At the end of the second quarter of 2023, 23 hedge funds in the database of Insider Monkey held stakes worth $168 million in Kohl's Corporation (NYSE:KSS), compared to 28 in the previous quarter worth $255 million.
8. Tapestry, Inc. (NYSE:TPR)
Number of Hedge Fund Holders: 40
Tapestry, Inc. (NYSE:TPR) provides luxury accessories and branded lifestyle products in the United States, Japan, Greater China, and internationally. On November 13, investment advisory JPMorgan maintained an Overweight rating on Tapestry, Inc. (NYSE:TPR) stock and lowered the price target to $41 from $56. Analyst Matthew Boss issued the ratings update.
At the end of the second quarter of 2023, 40 hedge funds in the database of Insider Monkey held stakes worth $467 million in Tapestry, Inc. (NYSE:TPR), compared to 39 in the preceding quarter worth $493 million.
7. Abercrombie & Fitch Co. (NYSE:ANF)
Number of Hedge Fund Holders: 32
Abercrombie & Fitch Co. (NYSE:ANF) is an Ohio-based specialty retailer. On November 14, Telsey Advisory maintained an Outperform rating on Abercrombie & Fitch Co. (NYSE:ANF) stock and raised the price target to $74 from $62, noting the increase reflected continued momentum ahead of the holiday season.
At the end of the second quarter of 2023, 32 hedge funds in the database of Insider Monkey held stakes worth $396 million in Abercrombie & Fitch Co. (NYSE:ANF), up from 23 in the previous quarter worth $295 million.
6. Boot Barn Holdings, Inc. (NYSE:BOOT)
Number of Hedge Fund Holders: 32
Boot Barn Holdings, Inc. (NYSE:BOOT) owns and runs specialty retail stores. On November 21, investment advisory B Riley initiated coverage of Boot Barn Holdings, Inc. (NYSE:BOOT) stock with a Buy rating and a price target of $92, noting the firm had a proven business model and opportunity for a decade of low-double-digit annual square-footage growth ahead.
At the end of the second quarter of 2023, 32 hedge funds in the database of Insider Monkey held stakes worth $305 million in Boot Barn Holdings, Inc. (NYSE:BOOT), compared to 34 in the previous quarter worth $280 million.
In addition to The TJX Companies, Inc. (NYSE:TJX), Lululemon Athletica Inc. (NASDAQ:LULU), and NIKE, Inc. (NYSE:NKE), Boot Barn Holdings, Inc. (NYSE:BOOT) is one of the best clothing stocks to buy right now.
In its Q2 2023 investor letter, Southernsun Asset Management, an asset management firm, highlighted a few stocks and Boot Barn Holdings, Inc. (NYSE:BOOT) was one of them. Here is what the fund said:
“We added Boot Barn Holdings, Inc. (NYSE:BOOT) to the Small Cap portfolio in the second quarter. BOOT is the largest retail chain devoted to western and work-related footwear, apparel, and accessories in the U.S. They believe that they have a $40 billion addressable market, and they focus their marketing and sales effort on four customer segments: work, western, country, and fashion (the smallest segment). The majority of their sales are for work-related products, which we believe will hold up relatively well even through a downturn. With 356 stores in 41 states, they are more than three times the size of their next largest competitor (in terms of store count), and because of their scale, we believe Boot Barn can offer competitive pricing and a very broad selection with good availability for customers – so in terms of niche dominance, BOOT is the biggest player in a fragmented industry with strong and growing margins and significant brand loyalty. A notable part of our investment thesis is confidence in their ability to grow. We see a path from 356 stores (currently) to 900 stores over the next 7-10 years by growing their store count more than 10% annually – a level this team has shown the capacity to achieve over a number of years. As you may remember, we owned Tractor Supply Company (TSCO) for many years and see a lot of similarities in these businesses and their footprint/target customers. TSCO has more than 2000 stores and is one data point that suggests BOOT has a long runway for growth.
As you know, a company’s financial flexibility is also very important to us; BOOT has a solid balance sheet and currently has more cash than long-term debt. We believe they can fund the opening of new stores with internally-generated cash flow and project that the investment in each new store should pay back in less than two years. Over the past six months, our team has met with the CEO and the rest of the management team multiple times, and we have learned a lot about their customers, real estate, pricing and retail strategies, competition, and corporate culture. We have gained confidence that their leadership is focused on the right initiatives: 1) expanding their store base; 2) driving same store sales growth; 3) continuing their omni-channel leadership; and 4) building out their higher margin exclusive brands. They have taken their exclusive brands from 16% in 2019 to 34% of overall sales in the most recent trailing twelve months with more room for growth over time. In short, we are confident that Boot Barn is a good fit for our portfolio and has a long runway for growing shareholder value.”
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Disclose. None. 13 Best Clothing Stocks to Buy Now is originally published on Insider Monkey.
