Apparel stocks are wearing market-beating gains year to date (YTD) in 2019. The S&P 500 Textiles, Apparel & Luxury Goods Index (^SP500-252030) is trading up 18.97% for the year, outperforming the broad market proxy S&P 500 Index by over 4% as of April 5, 2019.
A robust economy, tight labor market and lower taxes mean that companies in the space continue to benefit from higher levels of discretionary income and consumer spending. Also, apparel companies have spent considerable resources expanding their digital and e-commerce capabilities, which has boosted sales both domestically and into less saturated international markets. Moreover, consumer indulgence in fitness and the growing trend of donning activewear in cafes as well as gyms have kept sales growth charts steadily rising in the athletic apparel market.
From a technical standpoint, these three large-cap apparel stocks came back to life in Thursday's trading session after a month-long period of consolidation and appear poised to make a move toward their respective 52-week highs. Let's look at strategies for finding the perfect fit between risk and reward.
V.F. Corporation (VFC)
Greensboro, North Carolina-based V.F. Corporation (VFC) produces and sells branded lifestyle apparel and footwear, along with related products for men, women and children. Its largest apparel categories include action sports, outdoor and workwear. The apparel maker's portfolio holds brands such as Vans, The North Face and Timberland. In August of last year, the company announced plans to spin off its jeans business, which includes the Lee and Wrangler brand names, into a separate public company to focus on its profitable Vans sneakers and The North Face outerwear businesses. V.F. stock, with a market capitalization of $35.43 billion and offering a 2.35% dividend yield, has surged 26.24% so far this year, outperforming the apparel manufacturing industry average by 2.76% over the same period as of April 5, 2019.
V.F. shares snapped a three-and-a-half-month losing streak when the company reported impressive third quarter fiscal 2019 earnings on Jan. 18. The stock continued trending higher until March but has traded relatively sideways until yesterday, when it jumped 2.40%. The 50-day simple moving average (SMA) crossed back above the 200-day SMA in late March, supporting the case for higher prices. Traders who purchase here should look for a test of the 52-week high set on Aug. 10 at $95.32. Manage risk by placing a stop-loss order under the April low at $86.30.
Under Armour, Inc. (UAA)
Under Armour, Inc. (UAA), with a market value of $9.26 billion, markets branded performance apparel as well as footwear and accessories for men, women and the youth market. The athletic gear giant makes performance apparel using a synthetic microfiber designed to reduce perspiration and help regulate body temperature. The company's U.S. sales, which slipped 6% in the fourth quarter, continue to be an area of concern. However, the brand remains popular abroad, with international sales growing 24% over the period – both Europe and the Asia-Pacific regions recorded double-digit sales growth. As of April 5, 2019, Under Armour stock has a YTD gain of 24.56%.
Most of Under Armour's YTD gain occurred in January. Since then, the bulls and bears have struggled to take control of price in either direction. The stock sits close to an uptrend line extending back to the December bear market low and rallied strongly from that level in Thursday's trading session. The relative strength index (RSI) shows a reading of 57.32, well below overbought territory, suggesting that price has plenty of room to make a charge toward the 52-week high at $24.96. Those who take the trade should place a stop below the uptrend line to protect trading capital.
Hanesbrands Inc. (HBI)
Founded at the beginning of the 20th century, Hanesbrands Inc. (HBI) manufactures and sells a range of basic apparel for men, women and children. The maker of Bonds and Hanes underwear operates through three business segments: Innerwear, Activewear and International. It sells wholesale to retailers as well as direct to consumers.
Hanesbrands continues to make inroads into the popular activewear market, with this type of apparel accounting for 37% of the company's total revenue in 2018. It expects sales from its 100-year-old activewear brand Champion to grow another 29% in 2019. From a valuation perspective, the stock is cheaper than its competitors with a price-to-earnings ratio (P/E ratio) of 11.7 versus the industry average of 21.5. The company's stock, which has 97% intuitional ownership and a market cap of $6.65 billion, offers an enticing 3.35% dividend yield and is up an eye-catching 47.96% YTD as of April 5, 2019.
Hanesbrands' share price rocketed 20% on Feb. 7, when the company topped analysts' fourth quarter earnings expectations. After that event, the price tracked higher for several weeks before spending most of March retracing toward the 50- and 200-day moving averages that now act as support. Buyers returned in force yesterday, pushing the stock's price up over 3%, just five days after a "golden cross" buy signal appeared on the chart. Hanesbrands shares sit nearly 20% below their 52-week high of $22.01 set on June 22, 2018, which leaves plenty of upside for swing traders, but it may be wise to close open positions if the price falls below the 50-day SMA.