10 Apparel Stocks Loved by Hedge Funds
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After identifying the most popular stocks among hedge funds (see our top 10 list) according to their third quarter 13F filings, we have decided to break down this analysis to the apparel industry exclusively. On the whole, industry-wide sales were up 3.8% in 2011 and should continue to grow as apparel retailers look to alternative distribution channels—including specialty shops, mass merchandisers and e-commerce. Our list includes the hundreds of hedge funds and prominent investors that are required by the SEC to disclose their public equity holdings quarterly. In descending order, we have outlined the most-loved apparel stocks based on the aggregate number of funds owning each.
Gildan Activewear (GIL) had 16 filers owning the stock, putting it in a tie for eighth. This international apparel maker trades at an industry high P/E of 40x with only a 10% five-year expected earnings growth rate. We remain cautious on Gildan given the apparel company is already up almost 100% year to date.
Under Armour (UA) was another apparel company tied for 8th with 16 filers. Under Armour also trades on the high end when compared to its peers at 50x earnings. Although this apparel company has better growth prospects than Gildan (expected to grow earnings at over 20%), we would also be wary of this company.
Warnaco Group (WRC) is the final stock tied for eighth with a total of 16 filers at the end of 3Q. Warnaco is another apparel company trading with an outsized P/E at 40x and a relatively low earnings rate at 11%. The premium on Warnaco shares is driven by PVH’s – our fifth ranked stock on this list – plans to acquire the company.
V.F. Corporation (VFC) came in seventh with 18 filers after a net decrease of six filers. With a P/E of 17x, VF Corp is near the low-range of the industry and has managed to beat EPS estimates each of the last four quarters. We consider VF Corp a solid value play, trading at only 15x forward earnings and paying a 2.2% dividend yield.
Fifth & Pacific Companies (FNP) had 20 filers owning the company at the end of 3Q to come in sixth. After changing its name earlier this year from Liz Claiborne, the stock is down almost 10%. Fifth is the maker of high-end brands such as Juicy Couture and Kate Spade. We are cautious on this apparel company, which appears to be a good value play at a 15x trailing P/E, because it trades at nearly 50x forward earnings. Billionaire Ken Fisher of Fisher Asset Management was the top fund owner of Fifth & Pacific at the end of 3Q (check out Fisher's newest picks).
PVH Corp (NYSE: PVH) saw a net increase of two filers and had 22 filers to its name in 3Q, making it the fifth most popular apparel stock owned by hedge funds. This apparel maker of iconic brands such as Calvin Klein and Tommy Hilfiger is expected to grow earnings over the next five years at 13% annually. Despite being up over 60% year to date, PVH still trades relatively cheap, at 20x trailing earnings – only 16x forward earnings – making PVH an interesting value play. Billionaire Steve Cohen with SAC Capital made PVH one of his big bets in 3Q (check out Cohen's other top moves).
Ralph Lauren (NYSE: RL) came in at fourth with 25 filers. This high-end retailer trades in the mid-range of the industry at a 23x P/E. With a forward P/E of 18x and one of the higher industry growth rates at 14%, we believe this company could be a solid investment. Billionaire investor and fund manager Stephen Mandel had nearly 4% of his 13F portfolio invested in Ralph Lauren at the end of 3Q (check out Mandel's newest stock picks).
Carter's, Inc. (NYSE: CRI) barely beat out Ralph Lauren for third with 28 filers. Carter’s focuses on children’s brands, including OshKosh and Carter’s stores, and it offers investors some of the best 'growth at a reasonable price' opportunities in the apparel industry. Expected to grow five-year earnings at 18% annually, this apparel company trades with a PEG near 1.0.
Coach (NYSE: COH) was in second with 31 filers. Coach also offers some solid growth, much like that of peer Ralph Lauren, at a 14% five-year expected growth rate according to sell-side analysts. This luxury accessories company gives investors a great value opportunity, trading at two of the lowest P/E (16x) and forward P/E ratios (13x) of the group we’ve discussed.
Michael Kors Holdings (NYSE: KORS) was the top apparel stock by far with 43 filers owning the stock after a net increase of 13 filers, the largest increase of our ten stocks. Since Kors’ IPO at the beginning of the year, shares have nearly doubled, and its P/E is now above 40x. Even so, we still see value in Kors. This apparel company has the highest expected five-year growth rate of our ten apparel stocks at nearly 30%, and it trades on a forward P/E basis at 26x.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Coach. Motley Fool newsletter services recommend Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!