Sluggish domestic sales, shifting consumer purchasing patterns, and the drawn-out U.S.-China trade war presented a constant overhang for apparel stocks in 2019. While the group has gained 10.88% over the past year, the S&P 500 wears a return of more than twice that.
Moving into 2020, leading apparel companies continue to bolster their digital initiatives, expand licensing agreements, and expand their reach into less saturated markets outside the United States. Moreover, ongoing efficiency improvements should help combat margin pressures caused by increased operational and marketing costs.
From a valuation standpoint, the industry trades at around 18 times this year's projected earnings – roughly in the midpoint of its five-year range between 14.14x and 23.16x. Turning to the charts, a recent pullback to key support levels in the three names discussed below provides several enticing trading opportunities.
V.F. Corporation (VFC)
V.F. Corporation (VFC) designs and markets branded lifestyle apparel through three business segments: Outdoor, Active, and Work and Jeans. Several of its better-known brands include North Face, Timberland, and Vans. Earlier this month, the $33.77 billion apparel giant said that it was reviewing strategic options that outfit U.S. workers for the occupational niche of its work division. As of Jan. 31, 2020, V.F. stock issues a 2.28% dividend yield and has advanced 9.6% over the past 12 months. Year to date, the shares are trading down about 15%.
The share price has retraced sharply in January, with losses accelerating when the company missed Wall Street's consensus revenue forecast. In recent trading sessions, V.F. stock has stabilized at the $82.50 level, where price encounters support from a 12-month uptrend line that coincides with an oversold relative strength index (RSI) reading. Swing traders should consider setting a profit target near the 52-week high at $100 while managing risk with a stop placed underneath the late October low at $80.65.
PVH Corp. (PVH)
PVH Corp. (PVH) markets branded apparel in more than 40 countries, distributing its clothing wholesale to retailers and through company-owned stores. The company behind brands Tommy Hilfiger, Calvin Klein, and Van Heusen entered into a licensing agreement with NIKE, Inc. (NKE) last year to design, market, and distribute Nike-branded men's underwear. Digital transformation efforts also remain a priority, with the firm recently creating PVH Digital Assistant, an artificial intelligence-driven mobile app aimed at improving productivity, increasing sales, and enhancing customers' in-store experience. PVH shares have a market value of $6.67 billion, yield 0.17%, and are trading down 13.08% on the year as of Jan. 31, 2020.
After four months of steady gains, PVH shares have started the year with a wave of profit-taking. Active traders should use the early-year pullback as a buying opportunity given the price finds crucial support from the neckline of a textbook inverse head and shoulders pattern. Similar to the case of VFC, the RSI indicates oversold conditions for PVH shares – increasing the chance of an upside reversal. Those who take an entry around $90 should look for a move back up to key resistance levels levels at $107 and $133. Exit if the stock fails to hold above $85.
Ralph Lauren Corporation (RL)
With an $8.67 billion market cap, Ralph Lauren Corporation (RL) markets and distributes lifestyle products in North America and globally. The New York upscale clothing company's flagship brands include Polo Ralph Lauren, Chaps, Double RL, and Club Monaco. Despite the firm's North American revenue dipping 1% in the third quarter, sales growth in Europe and Asia of 3% and 4%, respectively, helped the company surpass analysts' top-line forecasts for the period. Wall Street has a 12-month price target on the stock at $125, which is 7.5% above Thursday's $116.25 close. As of Jan. 31, 2020, Ralph Lauren stock has edged 0.83% lower this month.
Buyers appear to be defending the premium clothing maker's share price at $112.50 – an area where it finds a confluence of support from an inverse head and shoulders neckline and a trendline extending back to late August. The formation of a bullish engulfing pattern over the past two trading sessions adds further conviction at these levels. In terms of trade management, traders could set a stop under the Jan.28 low at $111.27 and bank profits on a run-up to the April 2019 swing high near $130.